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Tips on What to Look for When Buying a Business

Posted by webtech on August 21, 2015
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Buying an existing business is a great way to simultaneously become more financially independent and kickstart your cash flow.

Considering that an existing business has customers, licenses and growth strategies already in place, much of the work has already been done for you.

Benefits of Buying a Businessbusinessman with hanging lighting bulbs

In light of the fact that over half of startups fail within three years, purchasing a business with a proven track record, established customers and recognizable brand identity is a much safer bet than starting a business from scratch.

By buying a business you’re effectively guaranteed a more reliable cash flow, trained workforce and the option to easily scale up or down. So, what’s the catch?

Buying an established business may be more money upfront than starting up your own company, but by getting your timing right and heeding the tips below you can greatly enhance your chances of securing a predictable, lucrative cash flow far into the future.

Tip #1: Investigate the Market 

You only need to take a glance at some of the startups in Silicon Valley to know that building up a company from scratch requires almost total commitment. This can result in an out-of-whack work-life balance that leaves little time for your hobbies or family.

Conversely, buying a business can provide you with a better work-life balance by allowing you to set your own hours and become your own boss. You can do this most effectively by picking a business that aligns with your interests and professional background.

Investigating the market and picking a business that aligns with your interests, background and training actually does two things – it significantly reduces the learning curve required to learn the market and, secondly, it helps you make a more informed decision about the company’s value.

By choosing to purchase a business that’s in alignment with your interests also means that you won’t get bored down the road. The end result: greater commitment and the freedom to choose your own work-life balance. Check to see if any of these businesses align with your interests and background.

Tip #2: Check Location and Licensing Procedures 

Before purchasing a business research the location and determine the feasibility (and cost) of reaching out to customers.

If you’re dealing with a highly established and loyal customer base, then extensive marketing campaigns might be a moot point.

That said, getting a grasp of how far the average customer is from the business’ location and determining the likelihood of their continued loyalty once the business changes hands could ultimately inform your purchasing decision.

Location can also determine the kinds of permits or licenses that you will need to oversee the day-to-day operations of a business once you take it over.

Checking out EPA regulations, for instance, or zoning for an impending property takeover could prove make or break when it comes to rendering a buyout sustainable over the long term.

Tip #3: Determine a Business’ Status and Tax Implications 

It’s important to determine upfront whether the owner has the legal right to sell that business and whether you’re engaging in an asset or entity sale.

Finding out whether you’re buying a limited liability company (LLC) or full-fledged corporation can tell you whether you’re getting into an asset or entity sale. Each type of sale has distinct tax implications and liabilities you should be aware of beforehand.

For help drafting a sales agreement, negotiating a purchase price and finalizing the sale of a business, contact the financial professionals at SunBelt Atlanta today for a free consultation.