This article are provided for information purposes only, and are not intended as legal advice.


The basics of buying a business

February 22nd, 2010

Many people want to own a business but do not want to pay the premium for someone to start the business and buy a business.  Remember, you are paying someone who took the risk to determine if the business was viable in the first place.  They have my built up the business over 1, 2 5 or even 10 years.  If you were to start today, your venture may be at risk of survival. A large number of new businesses do not survive the first three years of business.

 

Remember, when you buy a business, you get an established name, existing customers and immediate revenue stream.  The suppliers and customer come with the business, you do not have to research them to find out who has products that will sell in your business. 

 

When you are looking for a business, you need to determine does the business fit.  Are you interested in the business, do you have the resources for that business, do you have the cash, the credibility for that business, do you have the skills, the contacts for this type of business?

 

Does the old owner have a business plan, do you need a business plan to see what your needs are so you do not run out of cash.  when you buy the business, what is the relationship with the old owner, can you call them for advice after you buy the business or are you buying on bad terms.  I saw many years ago where three investors purchased a business.  They never enquired how the business was run before, they did not want to learn the owners knowledge, they asked the owner to show up after the sale was closed to introduce the new owners to the employees then fired the old owner.  The old owner ran the business for 30 years and they did not want to know what information she knew.  On top of that, they nickeled and dime everything on closing and would rather have spent $1 dollar in legal fees rather than giving the owner the $1.  The fact that they rented the building from the old owner was irrelevant, they did care if they were on poor terms with the old owner.  That is very gutsy and I would not recommend that approach.  You never know when you need the old owner from help.

 

When buying a business, ensure that you contact and get the help of professionals to help review the business and provide legal and accounting advice.  if you try to do this on your own, you may save money initially but you may regret the consequences of your actions at a later date when you find out that you are liable to several times the amount that you would have paid out to professional advisers in the first place.

 

When looking for a business, determine the amount of risk of the business that you want:  is this a mature business, a start up, a declining business, one subject to high volatility of sales? Is there a lot of competition, what is the environment like, are you in an industry where you could lose a sale for a penny?  Is this a high growth business which needs lots of working capital, do you have the working capital necessary for this business?

 

Lastly, are you able to add value to grow the business more or will you become the gate keeper and keep the business running the same as the old owner?


Filed under: Buying a business — Gary Landa @ 1:56 pm


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