Buying a small lousiness has several benefits over starting a business from scratch. When you buy an existing business, you have a customer base who already trusts the name, employees who can help get you going well and assets that you won’t have to buy. If the right opportunity is presenting itself, you need to go into the process ahead fully prepared. Here are some tips to help.
Get the Right Pros on the Job
No matter how business savvy you are, the days ahead as you make the purchase are going to be filled with legally and financially binding paperwork. You need a good business lawyer and business broker on your side. You’re also going to be handling quite a number of negotiations, so a skilled mergers and acquisitions consultation is valuable.
Buy the Assets
“Buying the business” may be what you intend to do, but at least on paper, make sure you’re buying the business’s assets, not stock in the business. Starting a new, separate business and utilizing your purchase gives you a stronger tax position, and also protects you against liability from creditors or lawsuits.
Do Your Research
If a small business is selling, and you want to buy, you need to find out exactly why they’re selling. Don’t buy a business without looking into their books, records and tax returns, or you may end up with a lemon. Don’t be afraid to talk to the customer base and find out what their opinion is of the business. The last thing you want to do is buy a business only to learn that they’ve developed a reputation for poor customer service in the past few years, which would be hard to overcome.
Discuss Accounts Receivable
If the business is the type that has accounts receivable, chances are there will still be some accounts to collect on after you make the purchase, so make sure you know if you will be able to collect on these accounts.
Consider the Competition
Before buying a small business, consider the competition. Is there a big competitor nearby? Would you be able to compete? You can even call the nearest big competitor and ask if they’re planning to build in your local area. A small mom-and-pop grocery store that’s doing great now may not be able to compete when a Walmart Supercenter comes to town, and you need to be aware of this potential before buying.
Understand Sales Tax Liability
Buying assets instead of business stock protects you against all liabilities, except for sales tax. If the seller hasn’t been paying sales tax or has been underreporting, the state tax authority can come after you. To avoid this risk, make sure the business is current on taxes, and consider asking for a clearance certificate from the state tax authority stating that the seller’s sales taxes aren’t your responsibility.
Buying a business is more complex than these six tips, but they are a good starting place. Make sure you have the right legal and financial guidance and the help of a mergers and acquisitions consultant, and you can have success in this process.