Buying an already existing business – What to know before finding a business for sale
Among the plethora of options available to an entrepreneur, it is a safer alternative to buy an existing business. When you're ready to find out a business for sale, you should plan to acquire a business which already has an existing customer base, a constant flow of cash and a good amount of business goodwill. However, without performing the required checks, if you might make the mistake of buying a business that is not profitable.
When looking to buy an existing business, you must decide the specific industry which you're going to target. It is tricky to find out the right business among the wide array of choices that are available. So, before you take the plunge, here are few things to watch out for. The ultimate areas that need to be scrutinized are:
INVENTORY
It is vital to have a detailed list of the present inventory for the business that you're planning to buy. Would you ever plan to buy a business that has been put on sale due to the fact that they have millions of dollars worth of stock that are still being kept on the shelves? If you make the mistake of choosing a business of an unscrupulous owner, he might even ruin the way you operate the business after you purchase it.
LEGAL PAPERWORK
If you don't want to buy a business with legal issues, you should ask for copies of various legal documents like insurance policies, present leases, contracts of employment and legally binding contracts which are currently in place with suppliers and customers. The buyer of the business should carefully analyze the restrictive policies as he needs to check any constraints or restrictions which could possibly cause harm to the running of the business.
ASSETS AND LIABILITIES
Get a complete list of liabilities and assets. What are the things that are included in the sale? You should know about the equipment that is involved with the business sale so that you can ensure that you can run the business properly with this equipment in place. Do you need to know the age of the current equipment? If you need to know this information, you should get a depreciation schedule from the accountant of the business owner. If you're planning to get a rundown business, you should do it with great alertness due to the fact that you will very soon need cash flow to modernize the business.
RECORD OF SALES
If you've been only relying on the profit and loss statements, you're wrong. Before buying a business that has been put on sale, you should get the copies of sales records to decide the USP (Unique Selling Proposition) of the products which the business will sell. If you can get a clear idea on the cash flow cycles of the strongest months, you can also plan accordingly in the near future. This also depends on the area you are buying the business in. For example, if you are planning on looking at businesses for sale in San Diego, you need to familiarize yourself with California markets in order to best calculate the value of the sales record.
Soon after you buy an existing business that has been put on sale, the initial few days of operation are going to be the most stressful and intimidating. But, if you have the right team along with you, and if you've done the appropriate checks, you will certainly have a good chance of achieving success.