Many entrepreneurs bypass the uncertainties and challenges of the start-up process by purchasing an existing business, complete with its own brand, facilities, employees and customers. It can be an excellent option, but do your homework first.
Upfront research can help to ensure that this is indeed a wise move from a personal and business standpoint.
Local newspapers and websites such as BizQuest and BusinessSmart make it easy to track down small businesses for sale. As you cull through the ads, be sure to do some research about yourself as well:
What are your interests? If you have no idea what business you want to invest in, eliminate those that are of no interest to you.
What are your talents? Being honest about your skills and experience can help avoid unrealistic business ventures. Some current employees of a business you’re interested in may possess skills you lack, but there’s no guarantee they’ll stay on after the business changes hands. Even if they do, they may want more compensation or other benefits.
What are your deal-breakers? Think about location, management complexity, valuation and time commitment.
Once you’ve found a business that meets your starting criteria, you need to learn everything about it — how it has performed, the current market environment, prospects for the future, etc. In many respects, this step requires the same amount of time and effort that’s necessary to research a start-up; no factors should be overlooked.
For example, a restaurant may occupy a high-profile location, but the landlord may be on the verge of raising the rent or selling the building to make way for new construction. A seemingly profitable manufacturing operation may have obsolete equipment or waste disposal processes that don’t comply with new regulatory guidelines.
A similar degree of due diligence is required to determine a fair and equitable purchase price for the business.
All available documentation should be examined closely — tax returns, financial statements, employee files, contracts and leases, permit requirements, licenses and patents, etc. If the owner is holding back this detailed information, you have to ask yourself why.
Don’t assume that everything “looks OK.” An attorney can help sift through the legal documents. An accountant can perform a thorough evaluation of the business’s financial condition. And you might want to ask a Certified Valuation Professional to handle the evaluation and come up with a realistic number.
The seller may also insist on conditions for the sale, such as ownership of the name and brand, assets that don’t convey with the sale, confidentiality and non-competition stipulations, royalties on certain products, client list restrictions, etc. Take a hard look at each one before making a commitment.
Should all the pieces fall into place, work with an attorney to draft or review the terms of sale. Legal counsel is also helpful when you get to the final steps to ensure that all the documentation is in order and all expectations of the transfer are met.
Article LINKFor additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com or my personal website at www.BuySellFLbiz.com.
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