Before Buying That Small Business
Buying a business entails some risks but these are less than when you start a new business. An existing business has the necessary equipment and inventory; customers; trained employees; and performance history. Before committing to buy a small business, consider the following.
1. Emerging Threat in the Location
A small business for sale may be on the market because of the owner’s impending retirement, health concerns or lack of heirs to the business. If, however, there are a few businesses for sale in the vicinity, there must be a looming demographic change. Find out from the city’s planning department if there are plans for major road repairs or building construction that may disrupt people or car traffic. These could negatively affect the company’s operations and potential for profit.
2. Business Licensing
Is the business properly licensed? How long has it been operating? Check with the Better Business Bureau and other appropriate licensing agencies.
Where is the nearest competitor of the business for sale? There is a chance that a popular franchise may open a store in the area that may wipe out the small business. Contact various franchise companies to see if there are such plans.
Do your research on the reputation of the small business for sale. Ask its neighbors, customers, suppliers, and local community leaders. Has there been bad publicity? Were there complaints against its business practices or its owner? Local newspapers and industry publications for the past years are also good sources of information. You can also check with the Chamber of Commerce or Better Business Bureau.
5. Financial Records
Thoroughly review the company’s financial records including cash flow statements, accounts payable and receivable, employee contracts and payroll, balance sheets, contracts, leases, tax and licensing payments, and other important information.
6. Customer Base
Does the business rely on only a few clients? Will these clients continue to do business with the company under a new owner? Will the business survive if you lose these clients?
7. Business Plan
While still deciding on whether to purchase the business, plan ahead. Establish your financial goals and plan how to achieve them. Do you have enough funds to keep operations running smoothly after the sale?
8. Liabilities and Actions against the Company
Check the company’s payables – debts, loans, claims against it, taxes payable, bills and the like. You do not want to be saddled with financial commitments. Look for liens, judgments or lawsuits involving the company or its owners in the county or federal court system.
9. Professional Licensing
If the company’s business requires its owners or key employees to be professionally licensed, check with the appropriate state licensing agency. Are the business permits and licenses paid and up to date?