Starting your business from a starting is not always the way to get started. Buying an existing business can be another option and that saves time to deal with basic issues.
Buying an Existing Business
In most cases, buying an existing business is less risky than starting from scratch. When you buy a business, you take over an operation that’s already generating cash flow and profits. You have an established customer base, reputation and employees who are familiar with all aspects of the business. And you don’t have to reinvent the wheel–setting up new procedures, systems and policies–since a successful formula for running the business has already been put in place.
On the downside, buying a business is often more costly than starting from scratch. However, it’s easier to get financing to buy an existing business than to start a new one. Bankers and investors generally feel more comfortable dealing with a business that already has a proven track record. If you’re not careful, you could get stuck with obsolete inventory, uncooperative employees or outdated distribution methods. To make sure you get the best deal when buying an existing business, be sure to follow these steps.
The Right Choice
Buying the perfect business starts with choosing the right type of business for you. The best place to start is by looking at an industry with which you’re both familiar and which you understand. Think long and hard about the types of businesses you’re interested in and which best match your skills and experience. Also consider the size of business you are looking for, in terms of employees, number of locations and sales. Next, pinpoint the geographical area where you want to own a business.
Contacting a business broker is another way to find businesses for sale. Most brokers are hired by sellers to find buyers and help negotiate deals. If you hire a broker, he or she will charge you a commission–typically 5 to 10 percent of the purchase price. The assistance brokers can offer, especially for first-time buyers, is often worth the cost.
Few Things to Consider
1. Stock. You or a qualified representative should be present during any examination of inventory. You should know the status and condition of stock. After all, this is a hard asset and you need to know what euro value to assign it.
2. Furniture, fixtures, equipment and building. This includes all products, office equipment and assets of the business. Get a list from the seller that includes the name and model number of each piece of equipment. Then determine its present condition, market value.
3. Copies of all contracts and legal documents. Contracts would include all lease and purchase agreements, distribution agreements, subcontractor agreements, sales contracts, union contracts, employment agreements and any other instruments used to legally bind the business. Also, evaluate all other legal documents such as fictitious business name statements, articles of incorporation, registered trademarks, copyrights, patents, etc. If you’re considering a business with valuable intellectual property, have an attorney evaluate it. In the case of a real-estate lease, you need to find out if it is transferable, how long it runs, its terms, and if the landlord needs to give his or her permission for assignment of the lease.
4. Incorporation. If the company is a corporation, check to see what state it’s registered in and whether it’s operating as a foreign corporation within Ireland.
5. Tax returns for the past five years. Many small business owners make use of the business for personal needs. They may buy products they personally use and charge them to the business or take vacations using company funds, go to trade shows with their spouses, etc. You have to use your analytical skills and those of your accountant, to determine what the actual financial net worth of the company is.
6. Financial statements for the past five years. Evaluate these statements, including all books and financial records, and compare them to their tax returns.
7. Sales records. Although sales will be logged in the financial statements, you should also evaluate the monthly sales records for the past 36 months or more.
8. Complete list of liabilities. Consult an independent attorney and accountant to examine the list of liabilities to determine potential costs and legal ramifications.
9. All accounts receivable. Break them down by 30 days, 60 days, 90 days and beyond.
10. All accounts payable. Like accounts receivable, accounts payable should be broken down by 30 days, 60 days, and 90 days.