Buying a business is an exciting proposition. Seek out businesses that align with your passion. When you decide to own a business, it needs to be about more than just money. As Dana Pena says, “Why start a business when you can buy the revenue?”. Ensure your success in buying an existing business by following the tips below.
Learn as Much About the Industry as You Can
Make sure you understand the competitive landscape. If the business has been very profitable, find out if there are barriers that will prevent others from entering the industry and competing for most of the profit. Aside from that, also explore the possibility of hindrances to exit that will keep competitors in the industry even if they are unprofitable. The industry can be viewed using multifaceted lenses and approaches, you have to learn how to go around inevitable situations in the competition.
Consider Only Buying the Assets
Consider the idea to offer to buy the assets of the business, and form a separate company to act as the purchaser. Why? Two reasons. First, you get a better tax treatment, since your “tax basis” in the assets will be the amount you paid for them, rather than the amount your seller paid. Second, if the seller owes money to people or is being sued by someone, you won’t assume any of those liabilities if you buy the assets.
Have a Plan to Improve the Business
Negotiate a Letter of Intent
Also called a term sheet, a letter of intent (or LOI) is a short, two to three-pager agreement between the buyer and seller of a business. This document spells out all the important terms and conditions of the sale. For example, it will include the purchase price, the date for when payment should be accomplished, the list of assets to be sold, and the process of the deal among others.
Buying a business can be very rewarding as long as you make sure you don’t get easily blinded by the positives. You want to make sure you investigate all aspects of the business and thoroughly deliberate before making a decision to buy. Taking note of the tips above will help in ensuring that your venture lands on the positive side of the ledger.