What should you consider before buying a business?

22 Mar, 2021

On Behalf of Mack & Mack Attorneys | business law

Some entrepreneurs get into the business world by building a new business from the ground up. However, you may have your sights on purchasing an existing company. There are benefits to buying an enterprise that is already in operation and makes a profit. Still, a buyer might benefit from taking a closer look at the business first.

Some businesses look fine on the surface, but sometimes a buyer does not know what he or she is getting into. With a little research, you may unearth some issues that might affect your decision to go through with the deal. CNBC explains some key steps that may help you make an informed purchase.

Examine the finances of the business

A business that has a healthy cash flow may seem like a good bet. Still, there are other financial documents that may paint a different picture of the company’s standing, including tax returns, profit and loss statements and bank statements. Other documents like lease agreements and contracts made with suppliers and employees may shed additional light on the company’s financial health.

Determine the longevity of the business

The business might look attractive to you because it sparks your interest. But like any business, it depends on continued interest from customers or it will eventually falter. So before you make a final decision, you might investigate whether the goods or services the business offers are continuously viable and not part of a fad that could fade.

Ask the seller questions

You may gain additional insight by asking a few questions of the seller. Consider asking why the seller has decided to sell the business. You might learn about special challenges the seller experienced while running the business. You may also inquire what the seller would have done to continue operating the business instead of selling it. The answer might shed some light on how to boost the value of the company.

In addition, you may want to know if the business can operate independently of the current owner. Some businesses thrive because the owner draws in clients. If the owner sells the business to you, the client base may dry up due to the change in owners. Also, if the seller starts a similar business in the same industry, you might find your business cannot compete with the new operation.

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