Buying a business is an exciting venture. If you have always been an entrepreneur at heart but lacked the time and money to start a business from the ground up, an existing company could be the perfect opportunity for you to pursue your dreams.
One of the biggest advantages of purchasing an existing business is that much of the initial work has been completed: physical location, employees, existing customers, marketplace awareness, etc. You have the opportunity to use your experience and skills to improve and grow the business.
While buying an existing business may come with slightly less risk than starting a new one, it is still a big decision that will require a tremendous amount of work. To help you make the best decision, the following are a few steps for analyzing the business you are thinking about buying:
- Ensure the financials are in order:
Regardless of the size of a business and whether or not it is currently producing profits, be sure all of the financial information is accurate. You must review everything, including tax returns, bank statements, profit and loss statements, employee contracts, supplier contracts, and lease agreements, to name a few.
If the company is not doing well financially, you want to get an accurate picture of where things currently stand. If the financial paperwork is in disarray, it can give you an idea of how the rest of the business is organized.
- Determine if the company’s success is contingent on the owner:
The owner may have a significant impact on the business. Will you lose a lot of employees if the current owner is no longer involved? Could you potentially lose customers if ownership changes? If a lot of factors rely on the owner and you are still interested in buying the company, you may have the option to work out a deal where that individual will commit to an employment contract for a period of time.
- Find out why the company is for sale:
Has the industry or business peaked? Are the products or offerings no longer relevant? Does the current owner simply want to move on to other opportunities or retire?