Buying an existing business is a great way to hit the ground running in the world of entrepreneurship. Because an existing business already has a legal structure, employees, a customer base, and is making a profit, you get to skip over one of the most challenging aspects of owning a business – starting it.
But you still need to do your research to ensure you are making a good investment. And the way you approach the business buying process is important. You will need to take a holistic approach to buying a business to ensure your investment is right for you and meets your needs.
Your first step should be to do extensive research on the company. A formal business valuation is a good place to start. It is also a good idea to get more than one. But don’t stop there. Make sure you do periphery research on the reputation and customer base of the business. Make sure to do comprehensive online research and talk to others in the industry.
Also, do extensive research on the industry itself if you are not already familiar with it. Find out how advancing technology will affect the business. Even in non-technical fields, new technology can have dramatic repercussion on the performance of a business.
Once you are confident about where the business stands in the industry and what its potential for success is, do your due diligence and address the important legal issues. Are all licenses and permits current? Is everything up to code? Is it zoned properly? Will you need to do any restructuring or make any major entity changes?
A big part of the process is discovering if the business has obligations and liabilities and whether it will make sense for you to cover them. Does the business have any pending lawsuits? Are there any liens or judgments? This is also where you should find experienced legal counsel to help you. The right lawyer can evaluate the legal liabilities of the business and help you decide whether it is the kind of investment that makes sense for you.
Finally, review the revenue model, financials, marketing plans and talk to past clients, and vendors to make sure that the financials truly make sense.
Starting from the outside perspective and working your way in should give you a well rounded look into the overall value of a business, and doing your research before buying an existing business will help ensure your investment is a wise one. With so much at stake, it is imperative to consult with a Family Business Lawyer® before you acquire a business. We are experienced in helping potential entrepreneurs identify good business investment opportunities.
This article is a service of Katie Charleston, a Family Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer a LIFT Start-Up Session or a LIFT Audit for an ongoing business, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.