Buying an existing business instead of starting one from scratch can prove to be a safe and convenient way to become your own boss. It can also come with several advantages, including an existing customer base, an already established brand, a well-established supply chain and possible existing cash flow.
That said, buying an existing business does come with a few potential cons. To avoid purchasing a company with more cons than pros, Paychex encourages you to do your due diligence when evaluating potential companies.
Find out why the owner is selling
The owner’s reason for selling can tell you a lot about the state of the business, and what running it will entail. Are they selling because they are retiring? Are they moving onto a different business venture, or are they seeking less responsibility so they can pursue other personal endeavors?
Assess the company’s finances
Before acquiring any business, it is crucial to first familiarize yourself with its finances and market value. If you get to the point of wanting to purchase, first hire a financial advisor who is independent of the company to perform an assessment. Also retain a tax professional, accountant and legal expert for their opinions.
Obtain a true value of the company for sale
Most business owners will name a purchase price that makes a sale financially worthwhile for them. While this is smart business sense on their part, the initial list price may not be what the business is actually worth. Before accepting a price at face value, ask for documentation to support the asking price. Additionally, assess the business’s physical assets, sales numbers, company reputation and other factors to ensure it will yield a positive return on investment.
Purchasing an existing business can be a smart move. However, to ensure it is, do your due diligence before agreeing to anything.