It is vital to think of critical aspects before buying a business to ensure that it’s ideal for you. In this article, you’ll learn more about the essential tips that will assist you in making the appropriate decision.
Generally, the process of acquiring a business can be a problematic task that can take weeks and weeks of consultations, or even months if you take into the consideration the time taken in identifying the ideal target company. Nonetheless, with the assistance of an advisory team and careful planning, the process can be a rewarding one where you end up acquiring the business with using hard money loans for real estate. Read on to find out about the things you need to consider when it comes to buying a business.
Examine Business’s History
After choosing the business that you feel suits your demands best, carry out detailed research on its finances and history. In your research, it would be helpful to carefully review the business’s certified financial records like balance sheets, cash flow statements, employee files, the main leases and contracts, any past lawsuits, accounts payables and receivables, as well as other applicable info.
With this research, you will have an extensive background on how the business functions, as well as vital info on any future problems that may come your way. Ideally, it is essential to have a total understanding of how the business functions before making conclusive decisions.
Target the Best Business for You
In most cases, it’s common for people to target the wrong businesses. Basically, it would be wise to acquire a business that fits your skills, experience, as well as your existing business if any. A common misconception amongst buyers is that if a person decides to sell a business, the high chances are that the business isn’t performing as desired.
Honestly, this is not always the case! In essence, people sell businesses for various reasons like health reasons, owner’s age profile, need for additional investment in the company, divesting of non-core functions, amongst other reasons. Now, if you fail to find a business that suits your demands, you may need to get the experts advice.
Negotiate a for the Best Deal
Remember, the seller’s asking price is typically a starting point for negotiation. As professional brokers denote, businesses usually sell between 10% and 25% below the seller’s asking price. With this in mind, if you pay the total asking price, the high chances are that you are overpaying for the business.
Here, the most important thing you need to keep in mind is to consider the total amount you are willing to part with. In addition, you need to keep your emotions away from the purchase. So, if you cannot comfortably afford the business, just walk away from the deal and do not look back.
Draft the Agreements
First, a confidentiality agreement is needed upfront to safeguard sensitive info shared between the seller and buyer throughout the process. Secondly, you need to sketch an LOI (Letter of Intent)showing the terms and conditions of the prospective sale as well as the negotiation process. In an ideal world, this letter does not act as a purchase contract. Instead, it comprises of contractually binding info like exclusivity period.
Now, if you plan to finalise the acquisition, the actual sales agreement will entail the final buying price as well as the ultimate terms and conditions. Furthermore, the deal needs to incorporate an employment contract for the previous owner to warrant stability during the transition process. Other assumption agreements like debts, leases, as well as other contracts, may be included.
Keep in mind that negotiating a buy is a tall order. Therefore, you will certainly need the experts’ help. Have a law company like LegalVision that will evaluate the terms of the sale and give you advice on the best way forward. On the other hand, an accountant will assess the value of the whole business and offer you an approximation of the ideal buying price that’s favourable to you. Besides, you may consider engaging a broker to assist in locating the best seller in the market.
Design a Plan to Market the Business
While the business may be established to some extent, it’s always essential to integrate some marketing and advertising plan that will maintain the business’s momentum. Regardless of the business’s existing customers, marketing the business is still inevitable. You should avoid assuming that the previous owner did everything for you.