Things to Consider Before Buying an Existing Business
By Mike Breisch
If you are looking at expanding your current business or if you’re wanting to become a business owner, then an investment that is worth considering is buying an existing business. If the purchase of a business is an option you are considering, there are several factors you may want to consider when determining if the purchase is the right option. In part one of this series on buying a business, we will give some things to look at when making an initial evaluation. In part two, we are going to look at some considerations that can help you reach a conclusion about whether buying an existing business is the best option or not.
The Seller’s Motive
Make sure you ask and fully understand why the current owner is selling the business. Ask the seller of the existing business about actual reasons that compelled him to consider selling the business. Confirm that the reasons are genuine and that they have nothing to do with the integrity and productiveness of the business. For example, are they selling because it’s not as profitable as they had anticipated, or are they just looking to retire from business ownership?
The Sales Blueprint
Make an assessment on the periodic sales of the business so far and contemplate the rise and fall over time. The patterns pertaining to the rise and fall of sales can signify the efficiency of the business. It also helps to predict the output of business in the future.
Financial Mileage
One of the attributes of a successful business lies in its profitability. A constantly increasing profit suggests that a business is showcasing a product or service that is out of the ordinary. Therefore, an exploration of the past profit records of a business can be helpful.
Tax Implications
There will obviously be a few tax implications on the business you want to buy. The buyer must make themselves well-versed with the taxes that are applied to that business.
Business Framework
An evaluation of the business structure can give an idea of how well the things have been working within that business setup lately. This is an important factor to know because an unstable business setup can cause difficulties in handling the business later.
Business Assets
Ask for the complete list of assets possessed by the business. This should be researched carefully since you might have to invest significantly into the reinvigoration of the business that is to be purchased.
Business Alliances
Find out if the business has been solely owned by one person or if it’s running as a result of a partnership. In the case of a partnership, make it clear whether the partners are exiting the deal or continuing. All these details should be discussed thoroughly and signed transparently in a case of business purchase.
Buyer’s Interest
The buyer should find out what interests them the most when it comes to a business and then make their decision according to that. The purchase of even a well-established business can prove to be a bad decision if the buyer doesn’t have the required skills to handle it effectively.
If you are considering the purchase of an existing business, remember that Federated Bank has a range of lending options. We are here to partner with you with you in this new opportunity. Come in and talk with one of our loan officers or give us a call at 1-800-843-3708 to learn more today.
