Read the full article at: smallbusiness.chron.com
There are many benefits to buying a business. With a number of factors are already in place – inventory and receivables, established customer base, brand identity, business concept, digital assets and online presence, etc. – buying an established business gives you the ability to immediately jump-start your cash flow.
It may be more costly to buy a business compared to starting one up, but you get a lot more in return. Additionally, the success rates of buying an established business is much higher than a startup. Studies have shown that between 60 and 90 percent of startup businesses fail within 5 years, and most startups fail within the first two years. You can read more about this topic in our article, 10 Reasons to Buy a Business Instead of Starting a New One.
Now that we’ve convinced you that buying a business is the way to go, here’s a few tips on what to look out for as you search:
1. Determine what you’re buying. Start by researching businesses that are closely aligned with your background, education and training. Being wise about the industry helps minimize the learning curve and gives you a clear sense of a business’s value. Next, identify your interests and talents to help you choose a business that’s interesting and exciting, yet realistic. Take into consideration the amount of time you are willing to commit and where you would like the business to be located.
2. Determine what you should be paying. Do a thorough due diligence of the business’s history and finances. This would include current balance sheets, profit and loss statements, tax records and accounts payable and receivable. As the owner how the price was determined. Quite often, owners believe their business is worth far more than it actually is. Review all business assets, including inventory, equipment, existing leases, contracts and employees. It’s wise to hire a professional business appraiser to inspect the business and determine its current market value. Also, review the projected cash flow before getting a loan for the purchase price, so as to determine how much the loan will support.
3. Check the legal status of the business. Does the owner have the legal authority to sell it? Is it an LLC or a corporation? If it is, then you need to determine if you want to buy the assets of the business or the business entity itself, which owns the assets. Different tax implication and liabilities apply for each, and it’s best to consult with your attorney.
4. Review business location and permits. Carefully review any issues which need to be addressed before the business is fully operational. This would include assessing the location of the business and determining whether or not it is favorable by researching customer concentration and likelihood that they will stay. Educate yourself on the types of licensing and permits you will need to operate the business. Check zoning requirements of the property area and environmental regulations; check and see how these may affect your business operations.
For more detailed information on what to look for when buying a business, download BizBuySell’s free Guide to Buying a Small Business.
“Buying a business can enable you to jump-start your cash flow immediately because inventory and receivables already exist. However, the downside may be a higher purchasing cost relative to the cost …”