What You Need To Know Before Buying A Business – Buying an existing business is different from starting your own. Before finalizing a purchase, it’s important to carefully weigh all the pros and cons and know what to ask of yourself and the business owner.
Just like starting a new business from scratch, it’s possible to take the wrong first steps, perform poorly, and even close up shop. Consider these questions to get you started on the right foot.
What You Need To Know Before Buying A Business
Before we get into the questions to ask when considering a business purchase, let’s look at the main pros and cons. Many entrepreneurs are torn between starting their own business and buying a business, so I hope this section clears things up.
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This is a proven business model that is probably the strongest. Acquiring a business that has been successful for years means creating a model and customer base with potential for future success.
Easier to get started – A more proven business model means you can get a lot out of the startup equation: business plan, market research, marketing, location planning, and more. Sometimes having fewer options makes things easier.
Branding Established – Branding is one of the most difficult, time-consuming and expensive aspects of running a business. Building a brand takes creativity, ingenuity, and often years. If you buy an existing business, you don’t have to worry about this.
Easier Financing – Banks and other lenders offer loans to businesses with a proven track record. If you are buying an existing business, it is more possible to get a loan for relocation or store improvements.
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This is where your customer base is located – some customers may leave after the business is transferred to a new owner, while many may stay (unless the fundamentals change). Securing a customer base takes a lot of uncertainty out of the equation.
It can be expensive – buying a successful and established business comes with a high price tag. All of the above advantages will further increase your success. You get what you pay for, and in this case, you pay a lot.
You may have to make big changes – Even if you buy a successful business, there may be changes you want to make. They may be expensive, hostile to existing staff, or difficult to implement.
Businesses can be downright embarrassing – With proper research and due diligence, it’s highly unlikely that you’ll be contacted, but the business may not be as successful as advertised.
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You lose the ability to be creative – most franchises need something fun to do, such as buying an existing business, making it your own and adding character.
So, let’s see what questions entrepreneurs should ask to start this process. And before you talk to a business owner, consult with yourself to make the right decision.
This is the most important thing. You should consider the list of pros and cons above and decide which option is right for you.
If you’ve narrowed down the list and have a few businesses you’re considering buying, ask yourself why you want to buy these businesses. Don’t be complacent and buy the business you want. Make sure you are loved.
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This is another important thing. You can rely on your own experience, but it is always useful to get advice from those around you. Ask your friends and family for information.
Once you’re sure of your goals, know exactly what you’re looking for, and found a suitable option, it’s time to ask the existing business owner some questions.
While some of you are looking for a business that needs fixing, most of you are looking to buy an established and successful business. That’s why you need to ask them why they’re selling. They built a company, made it successful and made a lot of money. What gives? This helps identify red flags early in the process.
Of course, you want to know how long the business has been around and a little about its history. Talk to the current owner about how he got started, his role in running the business, and some of the obstacles they’ve had to overcome. Of course, buying a well-established and proven business is great, but it comes at a high price.
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While any business owner knows it takes a lot of hard work and determination to be successful, it’s important to at least have some work/life balance. Learn more about what the role of an owner is. It also allows you to better plan your workspace.
As a business owner, you also need to pay yourself a salary. It is important to know if this expectation is feasible for your current personal financial needs.
While it’s rare to talk about money, it’s important to do so when buying a business. To find out if the operation is really effective, you need to know a little more.
This is the beginning. A business owner trying to sell a business for a fair price won’t allow you to look under the hood and see how profitable the deal is.
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You want to make sure that all of your bookkeeping has been done correctly and legally over the years. All tax returns, cash flow, balance sheets, payroll, accounts and more. adds up and doesn’t look fishy. You don’t want to buy a business that secretly prepares books.
If you don’t know the financial side of things, don’t be afraid to recommend an audit from someone who isn’t involved on either side. If the landlord doesn’t agree, that’s a clear red flag. An external audit is the most reliable way to properly evaluate a business.
You want to know about all the liabilities and assets that may come with the settlement. Once the debt is settled, this includes mortgage rates, equipment leases, custom contracts, and more. Assets can include equipment, existing inventory, brick-and-mortar locations, and intangibles such as brand recognition.
You’ll also want to cover a few legal grounds so that nothing is left blind once the keys are handed to you.
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Most businesses require a permit. Some require a large amount. Hurry up to find out what you need and how to contact them. The current owner should walk you through everything.
Buying a large business means you’ll probably keep at least some of your existing employees. It is important to know who and which employees you can trust for leadership roles.
You may need to finance a small business acquisition or even a single location operation. Discuss this with the seller and see what financing options are available. Most owners want to complete the sale within a few years, but this varies from seller to seller.
Call us at KORONA POS to learn more about how your operations can work with the right point of sale. We work with startups and business owners to manage inventory, report sales, price, order products, set up payments, and be ready to go. Click below and learn more with the demo table.
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Among other things, Michael writes about retail trends and tips for CORONA POS. His focus is on providing small business owners with a holistic approach to growth. In his free time, you’ll find him roaming the Southwest. Connect with him on LinkedIn. THE MATERIAL IN THIS ARTICLE IS PROVIDED FOR GENERAL INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE PROFESSIONAL ADVICE. DEVELOPING AND OR CREATING QUALITY PROFESSIONALS TO EMPLOY PEOPLE. LANDMARK Home Warranty assumes no responsibility and disclaims all liability for the use of any information contained herein.
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