Buying a business can be one of the most important and life-altering decisions a person can make, but there are a myriad of things to keep in mind. Without knowing the right questions to ask, or dealing with the right people, the dream scenario could turn into a nightmare. Doing your homework ahead of time is the key to getting what you want, and protecting yourself from a bad investment.
One of the most important considerations when buying a business is to look at the track record of the business. While past performance is not a guarantee of future success, it certainly can be a major factor. Businesses should be agreeable to opening up the books for inspection prior to the sale. Any business that does not offer this opportunity raises serious doubts about its own viability.
The buyer should also take the time to make sure he or she knows what they are getting with the business. Equipment, existing inventory, client lists and other similar factors will be very important. They will also be major contributing factors to the overall price being negotiated. Each of the items should be listed, or there should be a comprehensive agreement that all equipment and inventory will be part of the deal.
Another thing to consider when buying a business is the motivation of the seller. As with any small business, the core customer group is very important. If the seller is retiring, that is one thing. If there is the chance the seller will start up a competing business and take customers away from the new owner, that could be devastating. Insisting on a non-compete contract that would prohibit the seller from operating a similar business within a certain geographic radius is a common step taken to prevent this from happening. The specifics will depend upon the nature of the business.
Before buying a business, it is also important to learn as much about the business as possible. The more familiar one is with the business, the better the chances of success. Some owners may offer to stay on as an employee, or may agree to hire a prospective buyer as an employee for a short period of time so that the new owner can become familiar with all aspects of the operation.
In addition, financing is often another key factor when buying a business. A bank will want evidence that the investment is a good one. That may require coming up with a business plan, or demonstrating past performance. Checking the credit rating of the new buyer is also a standard practice. If a larger down payment can be made, this may lead to more favorable interest terms.