Did you know that you can become an entrepreneur while you don’t have a business idea? And how is this possible? One of the best options is buying an existing business. Rather than starting a business from scratch, buying an existing business is affordable, and has fewer risks. Besides, purchasing the business can allow you to boost your cash flow immediately since receivable and inventory are already available. For the finances, you only need to consider the actual profit and loss records, rather than rough estimates.
While buying a business is a lucrative investment opportunity, it can also be a disaster waiting to happen. Therefore, you should take your time to evaluate the business to see whether there are any hidden issues. With that said, let’s look at some of the important things that you should look at when buying a business.
The motive of the seller
When buying a business, it’s important to know the actual reasons compelling the seller to sell the business. Ensure that the seller gives you genuine reasons, and they don’t have to do with the productivity or integrity of the business.
For instance, is the owner selling the business because it has not been making profits as they expected, or do they want to venture into other business opportunities?
Demand
The last thing anyone entrepreneur would wish for is to purchase a business that sells products or services with little or no demand. Therefore, you should do a market assessment to determine the demand for the products or services offered by the business. If the business operates internationally, it’s important to make sure that there’s enough demand for the products or services both locally and internationally. Never buy a business before considering this factor. Besides, it’s important to determine the growth prospects of the business in the future.
The value of the business
Yes, you need to know the business’s value before purchasing it. Here, you should assess the finances and history of the business to get its value. Moreover, analyze important documents like audited financial records, tax returns, profit and loss statements, current balance sheet, as well as accounts payable and receivable.
Also, you will need the services of a professional evaluator to check the physical assets in order to ascertain that everything is in good condition and that all the inventory is marketable. Calculate a fair and equitable price by factoring in your projected ROI using the capitalized earnings method. Moreover, if you are securing a loan to purchase the business, you must consider the estimated cash flow. This will help you to determine the amount of loan that your business can support.
Market competition
The professionals Orlando Business Broker emphasized the importance of knowing the existing market competition of the business. This will allow you to know what you will be up against when you own the business. If the current business is a renowned brand in the market, there must be other businesses operating in the country offering similar services or products.
Therefore, you must find out whether the business you wish to buy and run is strategic or not. Check the marketing strategies that the owner has been using to market the business, and see if the same marketing strategies will work for you as well. Also, it’s important to have a second option, especially when you consider the interests, choices, and culture of your clients.
Permits and locations
It’s important to check whether there are any issues related to the business’ location and permits that should be addressed. Find out if the location is favorable for the business—conduct a customer survey to see their concentration and whether they will stay. Moreover, make sure that you are familiar with the types of permits and licenses required to operate the business.
Furthermore, it’s important to consider the zoning requirements that might affect the operations of the business. If the business has a physical property, check to see whether it’s compliant with the set environmental regulations of that area. You can check these details online or at your nearest EPA (Environmental Protection Agency) office.
Legal status
The legal status of the business will help you know if the owner has the legal right to sell the business. If the seller is a Limited Liability Company (LCC) or cooperation, find out whether you’d want to purchase the business’ assets or if you only need to purchase the business entity alone.
Purchasing the business’ assets allows you to get tax relief because you will only be taxed the amount that you purchase the assets, not what the owner paid for the assets. When you purchase the business, you will be solely liable for the finances and legal status of the business.
Bottom Line
Purchasing a business is a complex and tricky process. Therefore, you should ensure that you do a lot of research, and understand the risks involved in the process. Besides, it’s important to rely on the expert advice of professional business brokers, evaluators, attorneys, and financial advisers during the entire process. This will help you to make the right decision at the end of the day.
