What You Should Know When Buying A Small Business

October 28, 2009 by · 3 Comments
Filed under: Blog 

If you want to have a business, sometimes buying one is easier than starting one. An already established business has its own advantages than building a relatively new business from scratch. But purchasing a small business, even though it seems to be the easier route to go, is not necessary easy to do. And there is certainly a load of things that you have to know before you go ahead and buy a franchise or any pre-existing business.

When buying a small business, the first thing you should consider is the kind that you would like to own. It is not a good idea to invest on something without knowing for sure that it return your investment’s worth in threefold. The most important question to ask yourself is: What line of business should you invest on?

During the selection process, narrow down your choice down to the business that you are very familiar with. A business that goes in line with your profession is a good option. You can also choose something you enjoy doing, like a hobby. Either the case, the more important thing is that you must have extensive knowledge about it. This will play an important part in managing the business.

Once you have successfully chosen the right business for you, investigate the reasons why the owner opted to sell out his or her business. If it were due to the performance of the business, analyze carefully all the risk factors you will be dealing with. Are the changes you have in mind enough to make the business more marketable? For franchises, this shouldn’t be an issue, but it is still best to conduct a feasibility study on the target market, the location, and the financial condition of the business before you even attempt to buy it.

Funding is another good point to consider when buying a small business. You need to consider just a simple question: Can you afford it? Getting a business loan may be easy for you and money is out of question, but still, should you buy more than you can afford? This is the same as asking if you should get a loan in an amount you can’t possibly pay back on your own.

Buying a small business is not simple at all. If the business already exists, it is your responsibility to know of any lawsuits, tax liabilities, and debts that the business has, as all of these will be transferred to you for you are now its legal owner. On the other hand, if you choose to get a franchise, it is your responsibility to know all about the royalties, franchise fees, and the other charges that you need to pay and when you should pay them. Try to uncover all hidden charges as well. Sometimes, maintaining a franchise requires you to pay more than you should.

Steps in Buying a Business

1. Review the Business or Franchise Documents.

Business and franchise contracts have to comply with the set rules and conditions as provided by the law and the local government. Don’t buy a business without inspecting the papers first. Consult with the proper people, more particularly a lawyer, to go over the salient points included in the contract.

2. Negotiate the price.

If you think you can put down the asking price for the business a little more, try to do so. However, if you are not fit for these kinds of negotiations, try to enlist the help of your business broker. A few discounts here and there will surely mean a lot to your new business.

3. Process the payment.

If you have the necessary funding, then you can simply write out a check and pay for the business in the schedule as agreed upon. Business loans are offered by a number of banks. It would be good if you can talk to a banker about the same time that you are seeking out the perfect business to buy so the whole process becomes faster.

4. Sign all the necessary papers.

When payment has been made and an agreement was reached, both parties have to finalize the deal by signing all documents involved. These in turn have to be compiled accordingly as they will be needed in the next step. It is also best to have a lawyer around during the time the papers are signed to ensure everything is accounted for and nothing important is missed.

5. Register the business under your name.

The moment you have full rights over the business, you have to file all the necessary changes not yet performed with the proper public office. If you wish to change its name, transfer its ownership, and renew its business license, this is the right time to do all of them.

Buying a small business is a big step. And these are just a few things you have to learn. But with the right amount of skills and management effort, every business might just be a successful one.

Max Stephen
http://www.articlesbase.com/business-articles/what-you-should-know-when-buying-a-small-business-113511.html

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Comments

3 Responses to “What You Should Know When Buying A Small Business”
  1. Andrew O says:
    December 6, 2008 at 12:33 pm

    Licenses are portable. All you need to do is fill out the appropriate paperwork with any new agency you work for.
    References :
    CA life agent.

  2. ThePrincess! says:
    October 28, 2009 at 9:03 am

    When buying a small business, is it common to ask the current owners to carry the note?
    My stepfather (former CPA) says it’s wise to have the current owner of the business carry the note for the purchase price, so we would make monthly payments to them. The asking price is $145,000 for a small boutique store including inventory (70k), build-out (20k), fixtures (30k) and goodwill of 25k.

    Would this be wise to have them carry the note? What about the price… it’s high-end retail.

    Thanks!

  3. Barry C says:
    October 28, 2009 at 2:05 pm

    Well, what are your other alternatives?

    1 ) Pay cash and be done with it.

    2) Get a loan from a bank or financial institution

    3) Get a loan from one or more firends and family members

    4) Create a partnership with one or more people and have them pay part

    You didn’t mention the form of the business – I am guessing Small Proprietorship, but is that right?

    Why did you select one form over another?

    I suggest treating your step-dad to dinner and asking him for help with the following questions:

    1) What is the best form for this business and why? What advantages or disadvantages do the other forms have?

    2) What does "cost of money mean"? how does it apply to me?

    3) How can I finance the operations and marketing of this business?

    4) What is ROI under various scenarios for this business?

    5) What are the tax implications of all the above?

    6) What about the lease? Can I use terms form the landlord as a financing mechanism?

    7) Can I fianance inventory via arrangements withthe suppliers?

    Once you get all those answers, you will have learned a lot about buying and running a business and you are far more likely to be successful instead of haggling with the next person over whether *you* should carry *their* note as you try to unload the business :)
    References :

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