5 Things to consider before buying a business
It is very important to know the right questions to ask when planning to buy a business. This not only helps you pay the right price for the business but also prepares you to run the business once the transaction has been closed. Here’s a quick 5 step process to prepare yourself for asking the right questions that will help you make the right decision. So let’s dig in:
- Getting local: Firstly, get a good small business broker and an accountant to help you with the paperwork, because even with a small business, there’s going to be a lot of paperwork. Also, it’s important that your broker is local and knows the local laws. Let’s say you are looking for a business for sale in Michigan while your broker is from another state, if that’s the case then it won’t be of much help. Finding suitable Business Brokers in Michigan should be your first step in the above stated example.
- Why the business is available for buying: When you’re considering a big purchase it is good to be a little skeptical. You’ll want to know why the owner wants to sell.
If the business owner can’t give you a compelling reason why they are selling the business it should be an instant red flag. Most entrepreneurs don’t want to sell their business. There has to be a really compelling reason for them to sell their business.
You should discuss this with the current owner. If you don’t get satisfactory answers, it can be a sign of trouble.
- Buy the assets, not the business: If the seller is a corporation or a LLC, you shouldn’t be buying stocks in his business. Try to buy the assets of the business, and form a separate company to act as the purchaser. This will help you get a better tax treatment, since your “tax basis” will be the amount you paid for the assets currently, rather than the amount your seller paid for them long ago. Secondly, if he owes money to people or is being sued by someone, you won’t get any of those liabilities if you buy the assets.
- Get information about accounts receivable: Most of the business’s customers will owe the seller money on the closing date. There are only two ways to handle this: Either you purchase the accounts receivable at closing or you let the seller collect them.
- Government Regulations: A lot businesses have to comply with certain government regulations. If the business you’re interested in has regulations, make sure you have a thorough understanding of the rules and it’s implications before you move forward with the sale.
Even a small change in regulations could cause your costs to increase so much that your business could turn unprofitable overnight. Under no circumstances should you overlook this area. Take the time to investigate the regulations. Talk to people in the same industry and get hold of a good lawyer who can help you formulate the strategy ahead.
Check: Business Broker in Detroit
Buying a business is exciting as it has a lot of positives such as a customer base has already been established and so has a reputation. These are great assets to start with. But before making the decision you must consider the negatives as well and thoroughly do your research in order to have a fruitful and profitable venture.