It’s exciting! You’re eager with anticipation. You have the chance to take over a business. You won’t have to worry about starting one from scratch since most of the legwork will have already been done. Or maybe you think it’ll be a great way to expand your current business. Don’t go getting ahead of yourself. Have you thought it through all the way? Taken everything into consideration? There are so many different factors to weigh before taking the plunge and buying an existing business. Let’s look at five of the things you need to consider before taking that leap.
1. History of the business
Take a look into the history and finances of the company you’re thinking of buying. How long has it been in business? How viable is it? What has worked and not worked for it? You’ll also want to review copies of its certified financial records, such as cash flow statements, balance sheets, accounts payable and receivable, employee files, major contracts and leases, and any past lawsuits and other relevant information. Looking over all of this will help you see how the company ticks and alert you to any potential problems that might come up. Every business has at least a skeleton or two in its closet. Don’t be afraid to ask, and if the seller refuses to supply the information, or if you find any misinformation, you may want to reconsider.
2. Assets
Take a look at the assets of the company. What will you be getting? Equipment? Store location? Lease? Products? Inventory? Recipes/secret formulas? Debts? You will need to evaluate all of this. You might want to do yourself a favor and assume you will be doing an asset purchase where you don’t assume responsibility for any debts. And make sure you’re buying the assets and not the business. Do not buy stock in a corporation or LLC. Offer to buy the assets and form a second company to act as purchaser. Doing so will earn you a better tax treatment, and if the seller owes money or is sued, you won’t be held liable for them.
3. Customers
What do the business’s customers have to say? How well do they like the business? Have they ever had any trouble with the business? What do they have to say about the owner? What do they think about you taking over? You also need to know who the customers are and why they buy from the company. Unless you understand your customers, you’ll be going in blind.
4. How does the business get customers
What has the seller been doing to get customers? What sort of marketing has been done? How has it gained any new prospects? Find out what they have been doing to market the business and how effective it has been. That way you’ll be able to see what you might need to do to step it up.
5. Why is he really selling
He knows his business better than you, so try to find out what the real reason is for selling. Sure, he will probably claim he’s retiring, or it’s for health reasons, or because another opportunity is available. But is it really? Try to find out if you can. There might be something hidden you should probably know about. He might never say, though. But if you do your research right, you might turn up something.
Don’t rush into anything. Do your research and don’t believe anything until it’s in writing. Buying a business is like buying a used car. There’s always another one to look at.
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