Purchasing an existing business can be less risky than starting from scratch. It usually has an established customer base, a network of professional contacts, and a financial track record that will make securing finance easier.
An existing enterprise will require less work in, so that you can focus on growing the company, rather than getting it off the ground. You may also have an instant influx of income, as compared to continually pumping cash into a startup.
What Should I Do Before I Even Consider Purchasing an Existing Business?
Before you consider buying an existing corporation, it is important to perform due diligence. A team consisting of an attorney, accountant, banker, and a broker can assist you in finding and securing the right fit.
There are many questions and issues to consider before you buy, including:
- Is it a good fit for what you are trying to do?
- What debts does the company have?
- Does it have any liabilities you need to consider?
- Review the inventory, furniture and fixtures, and legal documents.
When you buy a business, aside from the income and assets you also take on the company’s debt. While it may seem to make a good profit, it can also be eaten up if it is riddled with debt. If you have the money to pay the debt, then your new venture may thrive. It all depends on your situation and whether or not you can afford to not just purchase the company, but also accept its burdens.
Questions You Need to Ask About the Existing Business
There are a slew of important questions to ask before purchasing an enterprise. The following is a partial list:
- Why is it for sale?
- What does its future look like, and why?
- How does it market itself and attract customers?
- Has the company changed?
- Is there pending litigation against it or its owners?
- What about contracts?
This is another area where your team can assist. Inquire about leases, licenses, and tax liabilities; it may also have patents and trade secrets that you’ll need to know about.
Finally, absolutely make sure to talk to its customers and suppliers. Get as much information as possible before you decide to move forward. It’s also a wise idea to get a credit report and check with the Better Business Bureau.
What to Do During Negotiations?
If you are considering purchasing an existing company, you’ll want to get the most value for your money. You will need to strategize and take into consideration several aspects to negotiate the best deal:
- Determine its value.
- Come to the table prepared: typical purchase agreements can have over fifty different clauses to negotiate.
- Prepare yourself for the “what if’s.” Know what your position and rebuttal will be on points the seller may bring up.
- Specify terms of the sale: make sure to include anything that you feel is important.
- Make a reasonable offer. You don’t have to offer the asking price, but offering a figure that is far below what is being asked may cause a seller to shut the door.
Include your team in negotiations. An attorney can help secure the best deal for you, and the best possible outcome for your investment.
Should I Consult with an Attorney When Purchasing a Business?
Purchasing an existing company can be a very complex process, and one in which you will want to exercise caution. An experienced business attorney can walk you through negotiations, the drafting of terms in the sales agreement, as well as review any contracts put forth by the seller.
