Buying an Existing Business: Our Tips

If you want to run your own business without all the hassles of starting from scratch, then you should consider buying an established company. It’s a popular way to own a business that lets you skip all the headaches of creating a startup, such as completing the entire business plan, setting up the workplace, applying for permits, building the processes and inventory, marketing and advertising, scouting for manpower, doing tedious paperwork, and so on. You won’t need to worry about any of these and minimize lost time. Someone has already laid out a solid foundation and you’ll just need to hit the ground running.

Business closures and changing of hands are not uncommon. For instance, in 2016 the Florida Small Business Administration has recorded 16,514 business closures in contrast to 19,910 openings. Although the demographics do not clearly show how many establishments have changed ownership, the fact that numerous businesses are listed in business brokerage sites only confirms that selling a business remains a good way for business owners to exit the market. Meanwhile, for aspiring entrepreneurs and those who wish to expand their operations, buying a business in Florida from brokers offers a quick way of joining the marketplace.

The greatest benefit of acquiring an existing company is that it lets you skip challenging parts of launching a company. However, the entire process of acquisition – from scouting a business down to closing a deal and actual transfer of operations – can be complicated and tedious. To help you get a great business deal, below are some tips:

Tips for Acquiring Business

  • Consider your personal strengths and weaknesses when choosing a business to buy.
  • Ask around from employees, investors, vendors and the management why the business is being sold.
  • Check the actual location of the business, including the warehouse, production site, and storefront.
  • Know if the business site is situated in a marketable area with foot traffic and should be free from potential disruptions, such as flooding.
  • Research about the target market or customer base. Does the business have enough clients? Will the client base support the business for a long time?
  • Review the financial records of the company, particularly the operational expenses, payables, and receivables. Study the performance of the business since its start of operation, whether it is on an uptrend or downtrend.
  • Negotiate a deal that would include the present inventory and assets in the contract price.
  • Check what assets are included in the deal. Verify the current state of these assets, if they are in good condition or require repairs.
  • Ask if the company has other existing contracts or agreements that directly or indirectly affect its operations; for example, a lease contract on business space.
  • Review the business structure and know its tax or legal requirements. Make sure that they have complied with all legalities since they started operating.
  • Visit the local business bureau or local regulatory authority and check the background of the company. Some important things to check include pending liens or encumbrances, unpaid regulatory or tax fees, potential violations, complaints from clients, expiration dates of permits/business documents, etc.
  • Verify if the company exists as a partnership or a corporation, and know if all partners and stockholders agree to the takeover.
  • Find out how employees feel about the possible change in management. You want to know if the current officers and staff would stick out with the company once a new owner takes over.
  • Before closing the deal, request for at least a month of actual onsite immersion so you can experience and get fully acquainted with the business’ operations and stakeholders.
  • Learn about the best practices, as well as failures, of the business owner.
  • Set specific objectives and expectations for the business, such as the prospects of the business and the possibility of opening branches.
  • Come up with a business or marketing plan that clearly defines how you would run the business.

Buying an existing business entails a lot of considerations and it is very important to review the details of the deal. Make sure that you verify the figures being given to you by the previous owner. Take note that some businesses do have two sets of books: one that shows the real figures and another one that is for presentation. Better yet, you can ask the help of a certified business broker or an accountant in verifying the numbers. An experienced business broker should help you prescreen possible businesses, pinpoint an industry that best suits your interest, and negotiate better deals.

The Bottom Line

Although business acquisition offers many advantages, not all takeovers lead to a success. It is essential to do your homework and carefully study the deal to avoid buyer’s remorse. Poorly executed deals almost certainly lead to failures – and this is something avoidable. With due diligence and thorough background study, you can guarantee a successful business acquisition.

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