Your Checklist For Buying A New Business

By | August 25, 2013

There are a number of reasons why you might be interested in purchasing an existing business. Rather than working from the ground up to build a clientele, find investors and make a name for a business, you can purchase a company that is already successful. Unlike merely investing in a business, buying it outright means that you take control of the name and the assets, and it can be a smart decision for entrepreneurs and managers who are ready for the next big thing in their careers. Before parting with your capital, however, use this checklist to ensure that you are making the right decision with your purchase.

Ensure That You’ve Got the Perfect Location
One of the key factors in making any business a successful one is the location. Ask any entrepreneur or real estate agent, and they are bound to tell you the same thing. Remember that the perfect location varies depending on the company in question. A bakery that relies on heavy foot traffic, for example, will be most profitable when located on a busy pedestrian street. A used-car business, on the other hand, might be most successful with a position next to a major highway. Don’t be afraid to scout out the location in person. Click here to check out commercial properties online before you make a purchase. 

Find Out Why the Owner is Selling Their Business
After determining if the location is a solid choice for that particular business, you should find out why, exactly, the current owner is interested in selling. What you don’t want is to purchase a business that is on the brink of bankruptcy. Even with the best intentions, it is unlikely that you can turn it around and make it profitable in time. However, there are a number of great reasons why someone would be interested in selling a business. Many owners are ready to retire, and others have young children and don’t want the responsibility of running a business and a family at the same time. Additionally, some owners just want to have the cash so that they can buy a new home or pay off personal debts.

Check the Books and Profits
Before thinking about buying a business, you should carefully comb their last twelve months of profits and losses. If their accounts are a long page of outgoing payments and very little incoming, then you might want to reconsider the investment. At the same time, find out if there are any overdue taxes or bills waiting. If you don’t investigate this, you could buy what appears to be a profitable business and then be hit right away with a number of large expenditures that you aren’t expecting.

Find Out the Operating Costs of the Business
This is usually not too tricky, but it may involve some input from the current owner and perhaps even current employees. Unlike finding out if a business will turn a profit, this exercise is merely so that you know what to expect. Salaries, monthly bills, mortgage payments and more contribute to your monthly expenditure, and finding out all of these factors in advance can help you restructure the business, hire or fire employees, and change it to better fit your financial limitations. 

Ask Customers or Clients if They Will Support the Change
In many businesses, owners and staff form relationships with customers and clients. Taking ownership quickly might put off some long-term clients, which may affect your sales and profitability. Take some time to personally meet clients and customers before you purchase the business and get your name out there. If the sale goes through, you could even consider hiring the previous owner for a few weeks to help with the transition period. 

Have the Business Professionally Appraised
Even if you carefully follow all of these guidelines, you may still want to hire a professional appraiser. They can calculate the profits and losses, help uncover any problems with the company, and even craft their estimate of a fair purchase price.

Purchasing a new business is a big investment, and it is not something that you should take lightly. Finding the perfect location and determining the profitability of a business before the sale can help you feel confident about your purchase.