How to Determine If Buying a Small Business Would Be a Good Expansion Plan for You
If you've been in business for some years and have a reasonably good track record, you may be thinking about expansion. One way to make a considerable step forward is to acquire an existing small business. However, you need to review everything about that business and evaluate whether or not it's a right fit for you and there are many aspects to consider. What should you be looking at?
Big Picture Analysis
The first thing you need to ask yourself is whether or not you can take what the other party presents to you at face value. Should you trust the other party's accountant, or should you bring in another expert for an independent valuation? Have a look at the debts and obligations linked to the business and understand how much you will need to get involved in these. Are there any legal proceedings pending, which could take up some of your time or effort?
How long has this business been on the market and has it attracted any interest from other parties before? If so, what was the reason put forward by these other suitors when they backed out of a potential deal?
Be very careful when assessing your tax implications. Are the assets of the business valued correctly, to give you an advantage in terms of tax? How will you fare in relation to capital gains tax, if you were to sell the business down the road?
All of the financial records have to be carefully studied, including balance sheets, bank statements, invoice records, tax returns and profit and loss analysis. Sales records have to be very detailed and consistent. Do they fluctuate month by month or year by year?
Business buyers frequently forget to establish the status of the owner (or key salesperson) going forward. Is this individual critical to sales success for some reason? If so, you need to be able to guarantee that person's ongoing engagement, at least until you're able to transition forward.
Outgoing Owner Help
If the seller is not interested in continuing on in any role and is not critical to your success, you should ask them to sign an agreement that they will not set up a similar business in competition. You should also see if they will be willing to train you or key operatives and provide assistance for a certain amount of time following the purchase.
Clearly understand exactly what you are buying and what is not included. Every asset of the business has to be carefully itemised. Intangible assets are equally as important, especially any exclusive rights or customer mailing lists.
There are a lot of questions to ask and many details to pore over. It makes a lot of sense, therefore, for you to engage a specialist commercial lawyer to help you navigate your way through the maze.