While buying an existing business typically involves more upfront cost, it also presents less risk than starting from scratch. It’s a common thought that, if a business is for sale, there must be something wrong with it. In reality, entrepreneurs sell their businesses for a myriad of reasons, including that the needs of the business no longer match their lifestyle. Get prepared!
Spend time building your team. If you don’t have a working relationship with a lawyer, accountant, commercial Realtor and appraiser, then interview prospective companies to find the right fit. Your team needs to be independent of the seller and acting for you only. They are the professionals who should be knowledgeable about the business being sold and can often suggest other like business opportunities.
You’ll want a business evaluation completed by a licenced commercial appraiser independent of the seller, especially if real estate is involved. Has the seller provided 3 years of financial statements, prepared by an independent CPA, to be reviewed by your accountant? Are there any leases that need to be assigned?
In an asset sale (you purchase some or all of the assets owned by a business) your team needs to confirm amount, value and existence of inventory, fixed assets, accounts receivables, and granted goodwill. In a share purchase agreement, where you purchases shares in the company, rather than just the assets, your team needs to be satisfied with all items listed under Asset Purchase and Business Evaluation, and with the legitimacy of any accounts payable. Have you searched all necessary records to ensure the business is in good standing and there are no pending legal actions?
Finally, you’ll want to consider the ongoing viability of the business, competition, and sales trends. As well, as you are new to the business, find out the tenure and skillset of the existing staff and pending retirements and wage increases.
Choosing to buy an existing business is a valuable entrepreneurial feat that will impact your life, your community and the lives of your employees for years. With the right connection and a lot of hard work on the transition, you may be the perfect person to turn a good business model into great future for all involved.
Jolynn Green is the Executive Director of Community Futures Central Island who specializes in small business loans. Jolynn can be reached at email@example.com or 250-591-7499