Everyone dreams of owning their own thriving business.
For the most part, owning a small business means creating your own and starting from scratch. But there exists another option, in which a prospective entrepreneur purchases an already existing company.
Buying an already existing small business offers a myriad of advantages, compared to starting your own.
Unlike creating your own start-up company, buying an existing business offers less risk because it already has an established customer base, an immediate flow of income and employees who are already trained to handle the day-to-day operations.
But the thing is, getting an existing small business still poses some potential risk. So before taking out your dollarydoos and contacting your trusted Melbourne business broker, it’s best to do your own due diligence and read this checklist on what you should do before buying that company.
Research! Research! Research!
Researching is always the first step before making a major purchase like a car or a house, and purchasing a business is no different. Before buying that seemingly attractive coffee shop, shoe store, hardware or whatnot, read on about it read its important paper work.
Among the details you should know about are the company’s previous profit and loss statements, its tax returns, financial statements and its lease conditions.
Crazy Little Thing Called Earnout
What is an earn out? As defined, earn out is where the seller “must ‘earn’ part of the purchase price based on the performance of the business following the acquisition.”
This is useful when the buyer and the seller have a disagreement on the pricing of the business for sale. The previous owner based his price on the company’s past profits, while you, the buyer, define its value based on its current performance.
A considerable solution is to make the owner prove his price and adjust it, depending on the business’ performance — for a certain time period.
Renegotiate What You Can
Look for factors that you can renegotiate like the lease or the price of supplies. Know if the terms and conditions are still beneficial to you with respect to the current market.
As Bizben reported, knowledgeable entrepreneurs must be aware of the savings they might get just by renegotiating.
The Ugly Cost of a Makeover
Just like the movies, makeovers can be costly. Buying the business does not end after paying the previous owner, you also have to factor in the cost it would take to make an existing business adapt to the current trends.
Among the expenses you should consider are the cost of a website overhaul (if needed,) implementing a new marketing campaign and/or hiring new key personnel.
Consider The Future
The most important aspect of buying a small business is knowing whether the company you are acquiring has a clear future.
Read about the currently thriving industries and acquire a company that are just starting its peak. Look at it this way, in a time where smartphones are king, you wouldn’t buy a pager company would you?