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Are you thinking of acquiring an existing business? Fantastic! The results could be incredible if you do your due diligence. By purchasing an existing business, you’ll be able to enjoy fewer risks compared to starting a similar enterprise from scratch. Also, it’s often easier to get financing for an existing business compared to a new one.
However, if you don’t plan before selecting the best business to buy, you may purchase a business that is filled with problems and headaches. Without proper vetting, you could get a company with an under-performing staff, stale inventory, and a negative cash flow.
The following tips will help you get the best businesses out there:
1. Understand Your Motivations
You’re buying an existing firm to avoid the negatives of starting your own shop. Look for a business that has good employees, a loyal customer base, growing sales, established procedures, and a positive cash flow.
Also, make sure the business is in an area near your current location or in an area you’re willing to move to. For example, if you’re based in the Michigan area, narrow your search down to Michigan businesses for sale. This way, you’ll be able to find something local and stay motivated to keep up with your purchased business.
2. Is It a Fit?
You have your own strengths and experiences. Purchase a company that allows you to leverage your skills.
Make a list of your professional qualifications, experiences, and skills. What will you bring to the table? Are you good at marketing, sales, organizing, or managing? What are your dislikes? What’s your technical knowledge?
Always maintain an open mind when assessing your strengths and weaknesses. Spend time deciding the specific areas of a business where you think your experience would fit.
It’s a good idea to talk to some successful people in the industry you’re considering. Ensure they’re respectable and trustworthy and that they know the industry well. Float your ideas over a cup of coffee; you’ll get valuable insights from them.
3. Put Your Purchasing Team in Order
Before starting the purchase process, ensure you have the entire team in order. These are the professionals who will help you seal the purchase agreement.
These experts should include a banker, a broker, and an attorney. Ensure the people you hire have good reputations and references. They’ll be helping you undertake your due diligence and you need to know that they have not only the necessary knowledge and skills but also that they have your best interests at heart.
4. Ask Questions
You’ll need to get clarification on some areas before you proceed with the transaction. Some of these areas include the following:
- The reasons behind the sale of the business
- The future outlook of the business
- The existing business and marketing plans and how the firm obtains new customers
- Any transformations that the business has gone through in the past
- The key employees in the company who may not be easy to replace
- The turnover rate of all employees
Don’t make the mistake of buying a business before engaging its suppliers, customers, and employees in discussions. Let them tell you as much information as possible about their experience with the company.
Also, check the business’ credit reports and its owners’ credit reports.
5. Analyze the Financial Statements
Ask the business owner to share the business’ financial statements. They should include the past, current, and projected financial statements at a minimum.
The documents presented to you should show the genuine financial position of this firm. With these documents, your accountant can start working on determining the best purchase price for the company.