What to look for when buying an existing business
Buying an existing business can sometimes be a better option out than starting completely from scratch, as it saves you from some of the work like that of setting up infrastructure, hiring employees, creating customer databases etc.
Though buying a business saves you from a number of teething problems related to business, it still involves plenty of work: research, planning, analysis and much more.
If you are looking out to buy a business, there is some work that is required from your side. In order to determine that the industry you are planning to move into is actually suitable, do some thorough self-analysis about your own skill set and aptitude. Identify where your strengths as well as interests lie and accordingly choose the industry that suits you the best.
There are many details that you need to go through before shelling out the money to purchase a business. Proceeding without these steps is like digging a pit for yourself. Let’s take a look at some essential points.
1. The very first thing required is to go through the history of the company you are planning to buy. You must collect details like when was it started and by whom; how did the business evolve to this stage etc. You should ask the seller plenty of questions regarding the business e.g. why is the business up for sale; what are the assets and liabilities; have there been any changes in company’s products or service lines; what marketing strategies have been adopted earlier etc.
2. Another very important thing to know before saying yes to buying a business is to thoroughly check the financials. You must ask the seller to provide you with the last five years of balance sheets or profit and loss statements. Involve your accountant to review and analyze the financial reports and determine the profitability status of the seller’s company. Keep a track of the assets and liabilities of the business to ensure that you do not end up buying more of liabilities than assets.
3. One more important thing to do is to assess the reputation and the business relationship of the company. Get in touch with the customers and suppliers of the business to get a genuine understanding of how the business has been trading and what terms it shares with its vendors or dealers or other external parties. You must also get in touch with credit reporting agencies to check the prospective company’s credit history and status. Knowing company’s reputation will help you decide whether it is worth buying or not.
4. Once you have done all the above stated analysis, now it’s time to negotiate the price. You should do so with the help of your accountant and legal representative. Look at the expenses of this company and compare them with other similar business. After conducting the market research, negotiate the deal. Make sure that your emotional aspect takes a back seat when making a deal.
5. There is one more thing that you can do before accepting seller’s proposal: spend a day in the office premises of the company, with its employees. You also need to know how the day to day operations of business are carried out and if there are any challenges on the employee front. This is highly important as you are going to step in as the new owner if you buy the business, so employee rapport-building and connection is a vital task.