Deciding to become an entrepreneur is a significant step. It doesn’t matter whether you’re buying a business or starting from scratch. According to some statistics, more than 500,000 businesses are bought and sold every year. This is attributed to the influx of millennial professionals who want to own companies and baby boomers preparing to retire.
Purchasing a business can help you skip over the growing pains and headaches that start-ups encounter. But that isn’t the end of hard work. You’ll need to do more. You need to know how to buy a business before making a decision. This article highlights some vital things about buying a business.
- Learn About The Company’s Finances
The first thing you should do before buying any business is to check its financial condition. Go through documents like profit and loss statements, balance sheets, accounts receivable and payable, tax returns, and audited financial statements.
You also need to go through the business debts and determine whether the creditors have a loan on the company’s assets.
- Read And Understand The Lease
Most companies are built on leased spaces. Find a copy of the lease and go through it carefully. You also need to find out when it’ll end and whether you can renew it if you buy the business. Some leases seize to exist if the businesses get new owners. So, you should also ensure that the company will continue to occupy the space if you buy it.
It would also be best to ensure that the current brand owner pays rent regularly. That way, you’ll prevent yourself from being evicted by the landlord. If the lease is quite complicated or offers many challenges, you can negotiate for a new one with a longer-term and lower rent.
- Check The Physical Assets
It’s likely that your purchase will include some physical assets like inventory and equipment. Before finalizing the purchase deal, you should ensure that the equipment is working effectively. Because it may be challenging to confirm that yourself, it would be best to hire an expert to check it out for you.
Some equipment may be on leasing terms. You need to go through the terms and ensure you can take them over. The inventory should be marketable and updated. You don’t want to pay huge amounts of cash for obsolete products.
- Don’t Pay The Full Purchase Price
While closing in the deal, it’s best to hold back some purchase price amount. Experts recommend paying part of the amount after six months or a year. That way, in case you get some losses due to the owner’s failure to disclose vital information, you can refund the money from what you owe.
Buying a business is a significant step. However, before finalizing the purchase, you should ensure that everything is in good shape. That way, you’ll save yourself from buying a business that has faculty assets and numerous liabilities.