What You Need To Know When Buying An Existing Business

When you are looking to buy someone else’s business, there are a number of things that you need to know.  It is important that you know why the business is being sold and understand the financial implications of the purchase.  You also need to understand more about the business and the market that you will be entering.

Why Is The Business Being Sold?

The first thing that you need to know when buying a business is why it is being sold.  There are a lot of reasons for the sale of a business and they are not all negative.  Most people assume that businesses are only sold when they are not doing well, or the seller knows something that the buyer does not.  The reality of business sales is actually very different.

It is possible that the business is being sold because the current owner is at a different stage of their lives and cannot maintain the business any longer.  The needs of the business might not match the lifestyle of the owner anymore or the owner has to move on.  There are also a lot of business owners who build up successful businesses with the idea of selling them for a profit one day.

Understanding the reasons why the business is being sold will help you determine if you should buy the business.  If the business is sold because of life changes for the owner, you will generally be more comfortable buying.  However, if the seller is unwilling to tell you more about why they want to sell the business, you do need to be careful.  They could be trying to hide problems in the business that would make you not want to buy.

What Are The Biggest Challenges In The Business

When you are looking at the business for sale Cincinnati Ohio, you need to find out more about the challenges that the company faces.  If the company needs capital improvements, you will want to learn about this before you agree to the purchase.  Additionally, you will need to know about the problems that you will be inheriting with the business.

The challenges that the business faces will vary depending on their size and the market they are in.  Additionally, different businesses of the same size in the same market could have different challenges.  You should never assume that you know about the potential challenges before talking to the seller in the negotiations.

How Did The Asking Price Come About?

When you talk to the seller, you need to find out how they got to their selling price.  The asking price for the business will be based on a number of factors including how much money the seller needs to move on.  There is also some quantitative information that you will need to get that backs up the asking price.  If the seller is not willing to provide you with this information, you should reconsider buying the business.

It is very important that you understand the thought process of the seller in regard to the asking price.  This will help you understand other aspects of the business and the decisions which have been made.  The way that the seller arrived at the asking price will also tell you how open to negotiations they are.

If the seller only used arbitrary factors such as how much they need to move on, they will generally be more open to negotiating.  However, if the price is based only on quantitative data, you will generally not be able to negotiate as much.  Negotiation is important because it will help you get the best price for the business that you want to buy.

Get The Financial Documents For The Business

When someone sells their business, they need to provide you with the financial records.  This will help you determine if the business is profitable and what steps you will need to take to make it profitable.  It will also show you that there is a clear financial trail for the business which is very important for legal reasons.

The financial documents should include management accounts from their accountant and tax returns for the business.  Any other financial documents that back up what the seller is telling you should also be provided.  Once you have these documents, you will need to have your financial advisor or accountant look at them.  This will ensure that there is nothing untoward in the documents and that everything makes sense in a financial sense.

The Dependence On Key Vendors Or Customers

There are a lot of businesses that look very successful on paper, but when you dig a bit deeper you will find some issues.  One of the issues that you need to look for is when they rely too heavily on one customer or vendor.  When you buy a business that does this, you will be taking a major risk.

If the major vendor or customer feels loyal to the previous owner and not the business itself, you will have issues.  Once you take over the company the customer or vendor could leave, and you will have major issues.  It is better to look for a business that is not overly dependent on one vendor or customer and has a range of medium sizes providers or customers.

Are The Employees Aware Of The Sale?

Before you consider buying a business, you need to know more about the employees and if they are aware that the business is being sold.  If they are aware, you should try and find out what their plans will be after the sale.  There are many key employees who could decide to leave when the company changes hands and this can be a major issue.

In these cases, you will also need to ensure that the departing employees sign non-disclosure and non-compete forms.  This means that they will not be able to take customers or business practices to your competitors.  This is something you need to consider if the employees are more loyal to the old owner instead of the business.