Being the owner of your own company is a dream for many people -- which makes it incredibly exciting to actually be taking the steps to turn that dream into a reality when you get a chance to purchase an established business.
Hold up! Whether you're about to purchase a family restaurant or take over someone's auto shop, you don't want to allow your enthusiasm to override your caution. You need to do your due diligence before you agree to make the purchase.
What does that mean? Basically, it means making sure that you identify the risks you have and determine that the price you're about to pay is worth what you're going to get.
Before you sign that purchase agreement, here are a few of the things you need to check:
1. Do you know exactly what you are buying?
What do you get for your purchase agreement? Is the name of the company included with the assets? A company's name and reputation have power -- if you want to use that power, make sure you buy both.
2. Are you doing this the right way?
It's often smarter to form a company for the sole purpose of purchasing the business assets. That can give you some significant tax benefits and keep you from accidentally assuming the company's debts and other liabilities. Don't hesitate to seek out some solid advice about purchase strategies.
3. Do you get to assume the lease with the business?
If your seller is leasing his or her place of business, don't assume you can stay there on the same terms -- or at all. You need to determine if you can assume the lease and everything else about that lease. Operate as if you were signing it yourself and dig deep into its terms so you don't get handed a financial albatross.
4. Are the employees staying?
If the people your potential customers rely on disappear, your customers might disappear with them. Work out an agreement that allows you to talk to key employees before the sale is final to make sure they're willing to say.
Naturally, these are only a few of the things you need to consider during any business acquisition -- but they're big ones. You overlook them at your own peril!