Welcome to the second part of The 12 Days of Buying a Business. Buying a business is a big decision. There are many advantages to buying an existing business, but the process of closing the deal can be long and complicated. To help you have a good and safe transaction, I’ve put together my list of top tips when buying a business. This is a multi-post series covering all 12 tips in combination with a vlog. If you missed the first part in the series, you can find it here.
Today I give to you tips 4, 5 & 6. For a more in-depth look at each of these, check out the video at the bottom of the page.
Buying a Business Tip 4: Do your due diligence.
Before buying the business, you should gather as much information about the business as possible. You should tour the business regularly. Know what you are buying.
Additionally, you need to know what liabilities are attached to contracts you are assuming (i.e., lease obligations). This includes reviewing all contracts and leases, so you understand them fully.
Tip 5: Learn how the business operates. Learn as much as you can about each employed position.
It is important that you understand how cash flows through the business. Prior to buying, review the financial records until you understand every part of them. Reviewing the financials with the assistance of a CPA is also highly recommended. It may cost you some of your startup capital, but it will help you make sure you understand how the finances in the business work, whether you will actually be making money, and in many cases, help make sure that you are not overpaying for the business.
Also, it is a good idea to understand how the business is organized and how the employees relate to one another. Get to know each position, as if each position was your full-time employment. This due diligence will help you jump into business ownership, eliminate redundancies in employment, and avoid dependency on any one particular employee.
Tip 6: Look to forces that may impact the business in the short, medium and long range.
You need to be aware of the existing business’ successes, failures, and future opportunities or challenges.
Ask the seller and the people neighboring the business what things have impacted the business in the past and what could impact it in the future. You want to do this upfront to avoid unwanted surprises once you own the business. This includes doing background research and understanding why an existing business is up for sale.
For example, is a competing business moving in next door, prompting the seller to sell? Is the county about to start a massive construction project that will starve your area of foot or vehicle traffic? Or, perhaps, is the landlord simply impossible to work with?
For a more in-depth look at each of these tips, view my vlog below!
If you have questions on purchasing a business or starting your own business, please feel free to give our office a call. Also, these tips are for general guidance. A strong, safe business transaction should include the review of any documentation by an attorney. Give us a call today to schedule a review.
Halverson Law specializes in Business Law and provides expertise and representation on both transaction and trial work. Negotiating strong contracts and crafting practical legal strategies — it’s what we do. We’re ready to help wherever you are in the process of buying or starting a business, and we’re looking forward to helping you have a good and safe transaction.