Before You Buy That Small Business
entails some risks but these are less than when you start a new business. An existing business has the necessary equipment and inventory; customers; trained employees; and performance history. Before committing to buy a , consider the following.
1. Emerging Threat in the Location
A may be on the market because of the owner’s impending retirement, health concerns or lack of heirs to the business. If, however, there are a few in the vicinity, there must be a looming demographic change. Find out from the city’s planning department if there are plans for major road repairs or building construction that may disrupt people or car traffic. These could negatively affect the company’s operations and potential for profit.
2. Business Licensing
Is the business properly licensed? How long has it been operating? Check with the Better Business Bureau and other appropriate licensing agencies.
Where is the nearest competitor of the ? There is a chance that a popular franchise may open a store in the area that may wipe out the . Contact various franchise companies to see if there are such plans.
Do your research on the reputation of the . Ask its neighbors, customers, suppliers, and local community leaders. Has there been bad publicity? Were there complaints against its business practices or its owner? Local newspapers and industry publications for the past years are also good sources of information. You can also check with the Chamber of Commerce or Better Business Bureau.
5. Financial Records
Thoroughly review the company’s financial records including cash flow statements, accounts payable and receivable, employee contracts and payroll, balance sheets, contracts, leases, tax and licensing payments, and other important information.
6. Customer Base
Does the business rely on only a few clients? Will these clients continue to do business with the company under a new owner? Will the business survive if you lose these clients?
7. Business Plan
While still deciding on whether to purchase the business, plan ahead. Establish your financial goals and plan how to achieve them. Do you have enough funds to keep operations running smoothly after the sale?
8. Liabilities and Actions against the Company
Check the company’s payables – debts, loans, claims against it, taxes payable, bills and the like. You do not want to be saddled with financial commitments. Look for liens, judgments or lawsuits involving the company or its owners in the county or federal court system.
9. Professional Licensing
If the company’s business requires its owners or key employees to be professionally licensed, check with the appropriate state licensing agency. Are the business permits and licenses paid and up to date?
How to Find Profitable Businesses for Sale
1. Potential to create profits
Investigate if the business is able to generate enough cash flow to give the owner substantial income on top of salaries and overhead expenses. Can the business sustain the revenue that it generated over the years? Is its profitability due to the skills or special talent of one or more key employees, or to the outstanding products/services? Do a market audit.
2. Income and Expenses
Examine the company’s financial performance over the years. Are they consistent? Look for warning signs such as significant changes in operating costs and declining sales.
3. Proven System
Businesses become profitable because of tested ways of handling their operations. are popular because of their systems. do not have to undergo trial and error come up with a system that works. Contact other if you are considering buying an existing franchise.
Seek the services of experts – an accountant, lawyer and business appraiser. You will need help in your due diligence process. Remember to include the following in your checklist: the business name, address and contact details; names of business owners and key staff; professional and business licenses; legal and tax records; suppliers and contracts; competitors; assets, products and services; and financial statistics. Should there be any questions about the authenticity of documents shown to you, dig deeper. Check with the issuing agency and other sources.