Did you know that less than half of all businesses listed for sale ever complete the sales process? Buying a business is one of the most exciting things you can do. It’s also one of the scariest, and it requires careful planning and execution.
If you don’t have all your ducks in a row before making an offer on a company, there are plenty of ways that deal could fall through or go sour. Here are ten things to know about buying a business:
1. Bad Debt or Assets in a Business Purchase
The buying price for any business includes not only its assets but also its liabilities. When you buy a business, you will be taking over those debts and assuming them yourself.
That means that if you want to make sure you get paid back what you owe, you must pay off these obligations. Also, you should expect to invest some money into restarting the business.
For example, you may need to hire new employees or replace old equipment. So make sure you have access to enough capital to cover both sides of this equation. Otherwise, you won’t be able to close the sale until you’ve arrangements with creditors.
2. Making a Competitive Offer
There’s no point in paying more than market value for something. And you might think that because you’re offering such a great deal, they’ll want to make a decision there and then.
Many sellers prefer to keep their options open by waiting for offers they think are fair. They’ll often wait months or even years between initial inquiries from potential buyers. That way, they can see how much interest there is and decide whether to accept a particular buyer’s terms.
3. Don’t Buy a Franchise or Business Without Planning
Don’t assume everything will work out fine. Even though you plan and take care of every detail, unexpected problems often arise.
A seller who doesn’t disclose important information or makes unrealistic demands causes delays. Make sure you understand what you’re signing up for before agreeing to anything.
4. Be Prepared to Walk Away
Sometimes, despite our best efforts, we aren’t cut out to run a business ourselves. We lack the skills needed to manage people, handle finances, or add value. Or we don’t like doing certain tasks.
Whatever the case, it’s better to admit defeat now instead of later. As long as you’re honest about why you’re walking away, it would help if you didn’t face legal repercussions.
5. Get Professional Advice
No matter how confident you feel about your ability to succeed in business, hire an advisor. They can give you expert guidance can save you lots of headaches down the road.
An experienced attorney or accountant can help you with many issues. These range from tax liability to employee benefits. These professionals can also help you avoid pitfalls often seen with business takeovers.
6. Do Your Homework
If you’re buying an existing company, do plenty of research beforehand. Find out all you can about the industry, competitors, customers, and financials.
Then use this knowledge to negotiate favorable conditions. It’s always easier to ask for things upfront than to come back later and demand changes.
Check here if you’re wondering how to find businesses for sale.
7. Keep Records
Whether you’re buying a franchise or a single location, you’ll need to file taxes. To ensure accuracy, maintain accurate books and records throughout your ownership. Otherwise, you could wind up owing thousands of dollars in extra income taxes.
8. Consider Financing a Small Business Loan
Many entrepreneurs choose to finance their purchases themselves. But others turn to banks or credit unions for loans. Depending on your situation, one option may be preferable to another.
For example, some lenders need collateral, which means you’d have to put your home up as security. Others are willing to lend money without requiring any asset as proof. It would help if you considered both types when making your decision.
9. Understand the Risks Involved in a Business Purchase
When you buy a business, you become responsible for its debts and liabilities. It includes outstanding accounts payable, unpaid bills, or past due rent payments.
Not only that but there are also risks involving rebuilding a business’s reputation. Although on the surface, resolving any issues may be within your budget, you might find you’re lumped with the task of a six-figure marketing campaign to rebuild long-term trust.
These factors all add up to high costs that you won’t incur until months into your new venture. So make sure you know what you’re getting into before committing to buying a business.
10. Don’t Forget to Plan Ahead When You Purchase a Business
Even though most businesses take years to build, they only last a few short years. That makes planning crucial. Start by creating a five-year business plan detailing where you want to go and how you intend to get there.
Make sure you include realistic projections based on current trends. And, think about the effect purchasing the business will have on your own existing business. Planning for all these eventualities will minimize any damage you do to your own business in the meantime.
Buying a Business Is Rewarding
Buying a business isn’t easy. But it can be much smoother and more manageable by following a few simple steps.
And the best part is that if done right, you can feel satisfied knowing you’re keeping many people in jobs and improving the quality of life for everyone involved.
Check out our other blog articles for more high-quality business advice!