Are you thinking about investing in an existing business? Although this is one of the most exciting and potentially fruitful steps to take it can also be very daunting – especially if you’ve not done it before. Even if you’re getting a successful business with sufficient cash flow, an established customer base and trained employees you may be going into the process feeling as though you’re in the dark.
There are several key considerations, therefore, that you’ll want to keep in mind in this endeavour to ensure that you’re prepared for the process. To help guide you in the right direction, here are 8 of them:
- What Exactly Are You Buying?
This is one of the first key considerations that you should keep in mind when you’re buying a business. Do you know whether you’re buying the underlying assets of the business or the shares alone? If it’s the latter you’ll inherit potential costs alongside the employees. But if you’re only buying the assets, you’ll also receive all of the equipment among other items. It’s a good idea to determine exactly what you’re getting from the beginning before negotiating a deal.
- The Size of the Business
How big is the business in question? Is it a small business or a long-established large corporation? The size of it will determine how much it will cost, along with the assets that come with it.
If you’re purchasing the business so that you can focus your whole efforts on running it you need to ensure that it’s a size that you can handle – as the responsibilities of running it will depend on it. What you need to run a small business can be hugely different from what a large corporation requires.
- The Brand
How established is the brand domestically and internationally? Does it have a large following? Do people immediately recognize it? If you’re looking to make a big profit from purchasing the business, you’ll want to look into the strength of the brand.
Of course, if you have the capital you can always put it into developing it in the long term, but if you want sufficient cash flow from day one you may want to seek one that’s already well-known.
- Why Are You Buying It?
At the start of the process, it’s essential that you set goals. Think about exactly why you’re looking to purchase a business in the first place and what you want to achieve from it. Do you want to expand the business internationally? Or perhaps you want to only generate a steady income from it each year.
By having a clear goal in mind from the outset you’ll be able to make more efficient purchasing decisions and buy the best possible business for your requirements.
- How Will You Finance This Investment?
Another key consideration that should be at the forefront of your mind is how you will finance the purchase of the business. Are you considering buying it outright? Or perhaps you want to purchase it in parts, such as through a vendor take back? Alternatively, you might be wondering whether you can sell some assets or your annuity (find how you can do this through sell my annuity here).
Whatever route you’re considering you need to decide on this before you start to look at businesses and work out what your ideal budget is.
- The Location of the Business
This might seem like an obvious one, but it’s still worth a mention. Consider where the business is located and how close it is to you. Often, when buying a business, especially for the first time people will look for one that’s near to them so that they can have full control over the buying process/be able to visit it regularly.
- Sales and Payroll Taxes
Depending on the location, if you’re buying a business you’ll have to determine what sales and payroll taxes are associated with it. Without doing this, you’ll soon have the state tax authority enquiring into any unpaid taxes that the business accrued. It’s therefore important to ask the current seller if the business has any of these and if they can pay them before you invest in it.
- The Business Framework
When purchasing the business you should also make sure that you carry out an evaluation of the business framework. By doing this, you’ll have a valuable insight into how the business is operating and how stable it is within the market. This makes it easier to determine whether you should invest in it and how much work you’ll have to put into developing it.
Final Thoughts
So, there you go! Those are the top 8 things you should consider when buying a business. Of course, this isn’t a complete list. So along with the above, it’s vital that you conduct your own research and seek professional guidance. Through this preparation, you’ll be one step closer to owning the business of your dreams.
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