6 Important Questions to Ask When Purchasing An Existing Business
Although many people dream of opening a start up, purchasing an existing business holds many benefits. Whether you are looking to expand your current business by acquiring competitors or just want to dip your toes into entrepreneurship, buying a company that already has trained staff on the payroll and a customer following allows you to bypass some of the early headaches associated with a start up. However, you must still do your due diligence to make sure that your purchase helps you meet your goals as a business owner. As you begin to analyze a business opportunity, use these six questions to decide if a purchase is in your best interests.
Why Is the Business Up For Sell?
Business owners sell their companies for a variety of reasons, and knowing why the owner is selling gives you insight into the current state of operations as well as the future potential for profits. For instance, a business owner may just be ready to retire, which means that the company is likely doing well. However, a business owner that is selling so that they can start a different company in the same field may generate competition in the community that impacts your business.
How Is the Current Financial Standing?
Naturally, you want to know the gross revenue and net profits of the business for the past several years. However, you also need to look for documentation of these numbers. Be prepared to request documents such as the tax returns for the business that cover the last three years as well as income statements, balance sheets, and reports that break down profits according to specific areas such as the services that are offered.
Will the Products or Services Hold High Demand in the Future?
A business should always be viewed as a long-term investment, and you want to make sure that it is not being sold simply due to a lack of consumer interest. Spend some time thinking about the current nature of the business and whether or not it provides goods or services that will be in demand over the next five to ten years. If not, then think about how you might be able to change the company to make it more relevant.
Do Any Major Assets and Liabilities Accompany the Purchase?
Established businesses often come with assets that may include real estate, equipment, or established contracts with buyers. However, they also tend to come with liabilities that must be honored. Make sure that you understand exactly what comes with the company so that you are not faced with any surprises after the transfer of ownership.
How Does the Company Culture Look?
While you will naturally put your own spin on the company culture, it’s best to anticipate potential issues that could arise with the staff. Take a tour of the company and speak to a few of the key members of the staff to make sure that you fit in well with the current culture. Then, you can also talk to the business owner to find out if they anticipate the staff to stay or leave. While company transitions often involve a few members of the team leaving, it’s best to know that you are starting out with a dedicated staff.
What Strategies Are Needed to Grow the Business?
When a business is already up and running, you have the unique opportunity to immediately begin working toward stimulating growth. Take a look at the current business plan to identify areas that need work. For example, you may need to rev up the marketing efforts by updating the company’s online profile. Alternatively, you may have great ideas for new products to offer current customers.
The decision to buy an existing business gives you an opportunity to build upon features of the company that already work. While these questions should not be the only ones that you ask, they will all give you more insight into whether a business is the right venture to fit your goals.
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