Although acquiring a business means spending more money up front, there are upsides – less risk, taking over an existing business with an established client base, more control over profits, managerial and sales strategies, and so on.
If you're considering buying an existing business, before forking over any cash, here are the tough questions you need to ask and the steps you need to take to ensure a successful sale and smooth transition post-sale.
1. Why are the founders selling their business?
One of the biggest reasons why people avoid buying a business is they think that something must be wrong with it if the founders have decided to sell it, but this isn't always the case. Many potential buyers believe the finances are in bad shape, the organization is going to go under very soon or the business is no longer a going concern.
However, the reality is that founders might want to sell an organization for various reasons. For example, some people simply no longer want to lead a busy entrepreneur’s life. They want to relax and spend time with their loved ones. In other cases, people simply want to start something fresh, as they feel like they’ve done all they could with their current business.
2. Are you buying the assets or the entire business?
If you are buying an LLC or a corporation, always avoid buying the business's stocks. The best solution is to offer to purchase all of the assets of the business. If they accept, you should start your own company and buy all of those assets under the business's brand new name.
There are two reasons why you should do this: First of all, you'll pay less in taxes. (Your base taxes for those assets will be determined based on the amount you agreed to pay to the seller instead of the amount the organization paid for them when they first acquired them.)
Second, you won’t have to take on any responsibilities of the previous organization. For example, if they have any remaining debts, lawsuits or liabilities, you won’t have any responsibilities for them. In the end, you will have an easier job rebranding and introducing yourself to customers as a new business.
3. Know exactly what you will need
Buying and starting a business organization of your own is a major life decision that will impact your lifestyle, your family or partner, and your finances. This is why it is important that you approach the matter seriously and first determine what your needs are.
First, you will need to know what kind of location will best suit your needs. For instance, if you are acquiring an online business, you might not have to consider how far the business is located from your home and similar logistics. On the other hand, if you want to open a food business, you will want to be accessible to customers and deliver products quickly.
Second, you will need to consider the size of the facilities and whether they will suit your needs. Additionally, avoid buying oversized properties that you won’t be able to make use of, as you will pay extra taxes for no reason. Also, consider the industry you are in and find something that has all the infrastructure, machines, space and IT solutions that will suit your organization to reduce the amount of initial investments you will have to make.
4. Think one step ahead
Not only will you have to know your needs, but consider the things you will have to do initially when purchasing the business. This should also be a part of your buying process. Why?
Simply because you don’t want to buy something for a good price only to realize that you will have to spend more on initial investments to make a functional business organization. This means investing in equipment, installing new systems, fixing any damage around the property, etc. On top of that, consider the investment involved with the rebranding process and creating a new company that won’t be related to the previous business that was there.
If there are a lot of things that need to be changed or fixed, then you should probably look for something else, given the fact that there will be more work and expense involved. If you are willing to put in the time, money and effort, though, then counter with a lower price, outlining the reasons just mentioned, and see whether or not you can reach an agreement.
5. Meet the employees
When you already have experienced employees that are intimately familiar with the details of the business – the products (or services), the customer demographics, etc. – this is a major asset.
Interview all employees individually and see whether or not they are willing to stay on at your business. Also, make sure that all the employees receive training, including being brought up to speed on the mission and new norms and principles of the organization. Training new employees will be difficult. One option is to utilize an online LMS software application to create a standard course for employees to complete.
Make sure that you carefully consider these five things when acquiring a business. After you’ve made a purchase, it’s important that you instantly start working on your business and invest a lot of time and effort into making it a functional organization that will be able to make a profit. Work on your entrepreneurial skills and be a true leader who will know what’s good for business. Best of luck.