Accounting & Finance
Steps To Buying an Existing Business
If you want to run your own business without all the hassles of starting from scratch, you should consider buying an established company.
Purchasing a going concern is a popular way to own a business that lets you skip all the headaches of creating a startup.
What’s more, when you know the steps to buying an existing business and you’ve audited or analyzed the prerequisite permits, certificates, and leases, you can focus on taking it to the next level. What you may want to do as soon as possible is review the financial forecast reports and revise the business plan. Working on the business is where you want to dedicate your time and energy as the owner. Whereas your line managers and leaders can, under your instruction, focus on other essential management duties, including business process improvement and technology transformation.
If the business sells a product, you’ll also have inventory and established marketing and advertising budgets and campaigns. With a going concern, you can hit the ground running. However, everything is up for review, and transformation is needed to take the business in the direction you want it to be heading.
Did you know most startups fail within the first few years of operating?
Twenty percent of startups fail in the first year, according to Fundera. If we look at the state of Florida.
In 2016 Florida SBA recorded 16,514 business closures and 19,910 startups. How many of the closures were within the first year of operation is not stated, but the annual volume of closures is concerning. There’s no figure mentioned for establishments that changed ownership that year. Yet, we know acquisitions are a popular activity.
Numerous businesses listed in business brokerage sites only confirm that selling a business remains a good way for business owners to exit the market.
Meanwhile, for aspiring entrepreneurs and owners who wish to expand their operations, buying a business from brokers is a seamless way of joining the marketplace.
The most significant benefit of acquiring an existing company is that it lets you skip challenging parts of launching a company.
However, the entire acquisition process can be complicated and tedious, from scouting a business down to closing a deal and actual transfer of operations. To help you get a great business deal, below are some tips:
Tips for Acquiring Business
When considering a specific organization for purchase, there are many actions you can take to learn as much as you can about the business.
Ask around. You’ll be surprised what you can learn from employees, investors, vendors, and the management what they know about the business and why it’s being sold.
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.
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 regulatory authority to check the company’s background. Some important things to check include pending liens or encumbrances, unpaid regulatory or tax fees, potential violations, client complaints, 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.
Check the business’s actual location, including the warehouse, production site, and storefront. Know if the business site is situated in a commercial area with foot traffic and free from potential disruptions, such as flooding.
Research the target market or customer base. Does the business have enough clients? Will the client base support the business for a long time?
Negotiate a deal that would include the current 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.
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 at least a month of actual onsite immersion so you can experience and get fully acquainted with the business operations and stakeholders.
Have A Plan
Set specific objectives and expectations for the business, such as the prospects of the company and the possibility of opening branches.
Come up with a business or marketing plan that clearly defines how you would run the business.
You don’t have to decide to buy a business on your own. There are mergers and acquisitions advisors as well as your management accountant. You want the right team working for you. While you’ll know what inspires you, your M&A advisor and management accountant can objectively present opportunities suitable to your risk profile and financial position.
With your accountant, you verify the business performance and the figures given to you by the previous owner. Note that some businesses have two sets of books: one that shows the accurate figures and another for presentation.
An experienced business broker should help you prescreen potential businesses up for sale and pinpoint an industry that best suits your experience and values. There is a saying, “do what you love, and you’re sure to succeed“.
The Bottom Line
Although business acquisition offers many advantages, not all takeovers lead to 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, which is avoidable. You can guarantee a successful business acquisition with due diligence and a thorough background study.
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