5 Important Considerations for Purchasing a Business
Among those who desire to own their own business, many attempt to build a company from scratch. That, however, is not the only available option. Purchasing a company that is already in existence is a valid alternative. If you are interested in potentially acquiring a business instead of starting one from the ground up, there are several vital questions to answer.
- Do you want to purchase an independent business or a franchise? One decision you must make is whether you wish to buy a franchise or an independent company. Each option presents its own unique set of circumstances. With franchises, you are part of a systematic network built around an established name. There may be stringent requirements regarding the systems and procedures you must follow as a franchisee. If you opt to purchase an independent business, you may enjoy the benefit of increased flexibility, but may require more research and business development to acquire the same level of recognition an established franchise— properly situated—may have.
- Does this business suit your lifestyle? Another significant factor is the type of lifestyle you desire to enjoy. Different businesses may require different types of lifestyles. If you choose to purchase a restaurant, you may be required to be at the restaurant during times when most ordinary family gatherings occur. For some, that is a sacrifice they are willing and able to make. Other industries and businesses call for frequent travel. As an owner, you must understand what you value and what you can handle.
- Have you done your due diligence? It is extremely important that you conduct proper and thorough due diligence when purchasing an existing business. This process requires digging deep into the business records to fully understand the business’s history and more accurately predict its future performance. When conducting due diligence, it is important to hire an experienced business lawyer to ensure that a full examination occurs. Your due diligence search will likely include an in-depth analysis of the cash statements, profit and loss documentation, and any outstanding debt. This search should also include any information about the company's past or ongoing litigation.
- Is there additional information available through the personnel? As part of your investigation and research into the business, it is important to spend time speaking to and understanding the people involved. These people include but are not limited to the current owner, employees, and customers. When speaking to the owner, seek to gain an understanding regarding the owner’s motivation for selling, as well as any challenges and successes as the owner. In addition to speaking with the owner, it is critical to speak with employees. As you acquire a business, you also inherit the existing workforce, and their attitudes towards their work and their experience in the company may provide valuable information.
- Are you truly ready? Although you may avoid some of the challenges involved in starting a new business, purchasing an existing business is still plenty of hard work. In many instances, it requires upfront costs that exceed those of brand new businesses. It can also be a tedious process because some companies have hidden risks that remain latent until the due-diligence stage. Additionally, you must remember that funding the enterprise is still required.
We are here to help. Whether you choose to purchase an existing business or build one from scratch, our experienced team is here to help you evaluate your options and make the choice that is best for you. We also provide a wide range of services to help you protect your investment of time, money, and energy. Call our office today at 314-966-7766 to schedule an appointment.