What You Should do When Acquiring an Existing Business

Buying an existing business can save you the initial start-up costs and growth pains that come with starting a business from scratch. But it’s also a big commitment with serious risks.

How do you know it’s the right thing for you? This guide will help you make that decision.

Find a business you like.

Buying an existing business can save you a lot of start-up time and money. However, it can also present unique challenges. For example, the business may have outstanding contracts that you will have to deal with or a bad public image that you will have to improve.

It’s important to find a business that matches your skills and interests. Then, do your research to determine the current value and future growth potential of the business. You can do this by doing market research or getting a professional valuation.

Once you’ve found a business that meets your requirements, it’s time to make a deal. Start by preparing a letter of intent, which states your intention to buy the business. This will help you get more information from the seller because some businesses won’t provide detailed tax and financial information until they know that you are serious. This letter should include your offer and terms, as well as your commitment to cover the sales price, closing costs, working capital and any other expenses you’ve calculated.

Do your due diligence.

Before you buy any business, you must do your due diligence. This is when you collect all of the information on the company that will help you determine whether it is a good fit for you. This will include a review of the company’s reputation, an exploration of its financial records (including tax returns), and verification of business licenses. You can also hire an attorney and a CPA to help you navigate the process.

It is important to understand why the business is for sale as well, as this will impact your decision making. For example, if the reason is related to a cyber attack or bad press, you may be unwilling to purchase the business. Getting all of this information will take time and effort, but it is crucial to assure that no surprises come after you buy the business. This will also allow you to make a fair offer. Once you have all of the information, you can then negotiate a deal with the seller.

Negotiate the deal.

Buying an existing business or buy a small business can be a great way to skip some of the startup costs and grow a customer base more quickly. However, you’ll still need to carefully evaluate and investigate the business to make sure it’s worth your investment.

This can include analyzing financial data (and having a CPA do so if necessary) and reviewing any important contracts to make sure they’re transferable if you buy the company. You should also understand why the current owner is selling. It might be because the business is failing and they want to get out before the ship sinks.

It’s also a good idea to look at the current staff. If they can stay on after the purchase, that could be a plus. If they need to be replaced, that’s a cost you’ll have to factor in. You should also consider the cost of acquiring a new business license and permits and ensuring legal compliance with local zoning requirements.

Make it legal.

Once you’ve secured funding and completed your due diligence, it’s time to finalize the deal. Your advisors can help you draft a sales agreement that covers the necessary details, including a bill of sale that proves the purchase and transfers ownership to you, as well as an adjusted purchase price to reflect your financing and other costs. You’ll also want to negotiate any trademarks, copyrights or patents — these are not automatically included in the sale, but are important to ensure you own them as well.

You’ll also need to make sure the business has all of its licenses and permits, which are typically a requirement for businesses in regulated industries such as restaurants or childcare. Check zoning laws too, as some localities place restrictions on where certain businesses can operate. If the business will come with vehicles, you’ll need to get vehicle documents as well. An attorney can help you interpret any documentation you’re provided with, as well as review the financial, tax and legal aspects of the sale.