What To Consider Before Purchasing A Business

Buying a business can be exciting, especially when the numbers look great, and the owner is eager for a fast and easy sales process. While the figures can stack up, and you can end up with the dream business you were hoping to purchase, that doesn’t always happen.

Not all business owners have pure intentions when selling, and they can be hoping that the right buyer comes along that fails to perform their due diligence before signing on the dotted line. As eager as you might be to be your own boss, it can be worth considering the following information before entering into a purchase agreement you can’t get out of.

Due Diligence

While not all business owners aren’t trustworthy, it’s in your best interest to find out if the one you intend to enter into a business transaction with is as authentic as they’re making out to be. This can involve doing your due diligence with the help of corporate due diligence service providers like Diligence Group International.

Some soon-to-be business owners skip this step because they’re worried about the costs associated with the service, but it’s a small price to pay for being aware of any issues that might limit your new business’s profit potential in the future.

Corporate due diligence service providers can look for information that might impact your ability to run a successful business, such as concealing money to inflate a capital, sale, or market position. Such experts conduct public records searches to find leads and eventually uncover a business’s true financial holdings so you can make a well-informed purchasing decision.

The Business Owner’s Reason for Sale

Many business owners sell for innocent reasons, such as retirement, illness, separation, or pursuing other interests. However, business owners also decide to sell up when they know their business is not in excellent financial shape and need to get out before losing everything.

While you can take their word for it regarding the reasons they give for putting their business on the market, you’re also within your rights to use experts to see if there’s more to the story than what they’re saying. When you have all the facts, you can make a well-informed choice about proceeding with the business opportunity or walking away.

What You Get for Your Money

Buying a well-established business with a good name can seem like a smart decision. If people know and respect the business, t can seem like it makes perfect financial sense. However, you shouldn’t pay more for a business just because it has a good standing in your community. You should pay as much as it’s worth regarding its trade and assets.

Reputation is not tax-deductible, and the relationships the current owner has built up with members of the community and other businesses won’t necessarily carry over to you. As a result, it can be important to make your purchasing decision based on the assets you’ll receive in the sale and the financial figures from the trade.

Restraint of Trade

Restraint of trade describes a trade clause included in a legal agreement protecting a business owner from having their business impacted by someone with in-depth knowledge and skills from your business.

Business owners often put a restraint of trade clause into their employees’ employment contracts to stop them from working with their competition or starting a competing business within a certain timeframe and proximity of their own. When entering a sales agreement with a business seller, you can do the same.

With the help of legal professionals like commercial lawyers, you can state that the former owner isn’t allowed to start a new business offering the same products and services as yours or act in a way that prevents your business from freely conducting its operations. Failure to include such a clause could mean that once a sale is complete, the former owner can start a competing business and take their former customers from yours.

Property Details

Purchasing a business generally requires taking possession of a building, but the intricacies around that arrangement can be important to know before taking over ownership of a business. Your sales price might include ownership of a building or a lease agreement for a building owned by a third party.

In that case, finding out how long the lease is valid, the owner’s intentions for the building, and what maintenance costs fall on your shoulders can be important. If owned structures are included in the sale, do your due diligence as you would when purchasing a property for your family or as an investment. Learn about any faults it might have, the costs associated with maintenance and repairs, and whether the building fits your needs now and in the future.

While it’s easy to get caught up in learning about the day-to-day operations of a business and pay the facilities no mind, they can play a significant part in whether a business deal is wise or not.   

Staffing

As many business owners are discovering, retaining quality staff in a global staffing shortage can be challenging. While the business you buy likely has many highly trained and skilled employees, you can’t assume they’ll stay on once you take over ownership.

Some employees might take the change of ownership as an opportunity to retire, while others might be loyal only to the old owner and seek employment opportunities elsewhere. Before you sign on the dotted line, find out more about whether you’ll be taking over a fully-staffed team or one with glaring gaps that might limit your chances of full profit potential from day one.

Handover Period

Onboarding and training can be important for any new business employee, and the same can be true for a new owner. There can be a few things as daunting as turning up at your new business ready to run without understanding how it has been run in the past.

As a result, it can be worth finding out if the former owner is happy and willing to stay on for a fixed period to help you adjust to your new position as owner. Generally, such arrangements result in a higher asking price, but it can be a small price to pay for a smooth transition into your new role.

Liking a business and its profit potential is not always a sound enough reason to proceed with a business purchase. Do your due diligence and learn as much as possible about a business to ensure it’s everything you thought it would be.

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