How To Buy A Small Business
Posted by Richard on September 8, 2021
Business ownership is a dream for many people, and an alternative to starting from scratch is to buy an existing business. But where to begin?
First, with loads of due diligence. The more preparation, the better.
Your prep work starts with an honest look at your own experience, lifestyle and desires to figure out what type of business you want to buy. It’s helpful to search for a business that aligns with your interests and skills.
Next, make sure you assemble a good team. An accountant will help you decipher financial information and an attorney will help with negotiations and advice for structuring transactions.
You can search for available businesses in several places, from Craigslist to networking events and conferences. The website BizBuySell has thousands of listings.
When you do find one you’re interested in, the seller will likely ask you to sign a nondisclosure form or confidentiality agreement. The reason is because you’ll be privy to a lot of proprietary information that the seller wants to make sure remains private, should you decide not to buy.
You and your team will review financial and business documents to analyze the profitability of the business as well as whether they’ve remained up to date on necessary licensing and forms. Among others, these may include:
* Business licenses and permits
* Organizational paperwork
* Contracts and leases
* Financials, including tax returns, profit and loss statement, cash flow statements, balance sheets, accounts payable and accounts receivable, debts, etc.
* Organizational chart
* Inventory and equipment status
* Insurance documents
* Client or customer lists
* Intellectual property
Finally, if you decide to buy, you’ll have a stack of paper to review before purchase. These include things like a bill of sale, transferring ownership of vehicles and equipment, the lease and more. You might also ask the seller to sign a non-compete agreement, so they don’t start a new business that competes with yours.