3 tips for buying a business

November 23, 2014

Business ownership is a tempting financial investment, beckoning people to build their fortune from the ground up. Learn how to buy your own business with these tips.

3 tips for buying a business

1. Choose the kind of business

Buying an existing business that has a track record offers an established base of customers and business reputation. Forbes pointed out that 80 per cent of new businesses fail within the first year, so buying an existing business might makes sense.

The basic choices are buying a one-off, independent business or buying a franchise, either as a new or existing business. People who like routine and predictable systems are best suited to a franchise, where just about everything is laid out for you. More creative extrovert types may gravitate towards an independent business where they can express their creativity.

2. Ask the right questions

If the seller can't convince you that he/she is selling for the right reasons, be wary. Retirement and health issues are good reasons for selling, but sometimes business owners just decide that being their own boss is too much of a hassle. When looking to buy a business, you might want to consider taking steps to protect yourself from unexpected surprises by asking a business acquisitions lawyer to draft you an air-tight purchase agreement that spells out exactly what you are getting. It should contain seller warranties and indemnities for things such as taxes.

Several years of audited accounts, conducted by auditors who have to adhere to professional standards, are a must. Be wary of in-house, informal reports and accounts. In addition to year-end accounts, get year-to-date accounts for the current year. Some people enjoy the challenge of turning around a failing business, but if you're unaware of such details or don't possess the necessary means to repair said business, it can quickly become a financial burden.

3. Do your homework

Due diligence is a necessary part of the process. Your business lawyer will have a standard set of due diligence questions, covering everything from the tangible assets of the business to any pending litigation. One of the warranties in the acquisition agreement will state that all information provided is true and accurate. Hidden legal issues can drag your business under quickly.

Don't stint on legal and accounting advice and don't rush the process; take your time and do it right. Remember, everything's negotiable and it's probably not smart to accept someone's first offer. If you've found the right fit, buying a business can be very rewarding and after following these business buying tips, you can finally get down to work.

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