Some individuals find the idea of purchasing an existing business to be easier than starting their own. With an existing organization, many policies, processes and client lists have already been developed, which may reduce the initial costs associated with owning a business. However, it is important for people to do due diligence to ensure that they understand the current state and value of a business before making a purchasing decision.
Determining the value of a business, which is an essential part of calculating a fair purchase price, is an essential part of the buying process. Along with helping someone determine how much they can expect to pay for an organization, it may assist them in discovering potential problems related to cash flow, outstanding debts and difficulties collecting debts. There are several ways that someone can determine the value of a business, including capitalized earning approach as well as the tangible assets and excess earning methods.
Individuals should also research the organization in question. This will involve looking into financial statements and tax returns as well as seeing what type of agreements and contacts a business has entered into. Other important documents include client lists, sales and employee records, and information about whether a property is leased or owned.
Business planning is still essential when purchasing a business. Individuals may still need to outline processes for running things in addition to being aware of legal regulations. A business and commercial law attorney may be able to assist someone with understanding the requirements of state and federal laws as they relate to a business purchase.
Source: SBA.gov, “Buying Existing Businesses“, September 19, 2014