By Aryan Riggs
Purchasing a small business is truly a joy and pleasure that brings the opportunity to own a business. It is a process that does require some thinking, spending some time and energy in order to research and put a plan into action. There is a need for the potential buyers to know what they are likely to get so that they can make informed decisions and make the transition smooth.
The expectations when acquiring a small business
Assessing your readiness
Before you even start, consider whether you are qualified to buy a small business based on your prior experience, interests and financial situation. Managing a business is not a small feat one has to be committed, a boss, and most importantly a risk taker. Consider how long you’ve been in the industry, if you are willing to work for several hours when starting, and if you can control employees and customers.
Financial due diligence
It is important to research when purchasing a business and understanding its financial situation. Ask to see the financial documents of the past three to five years: income statement or statement of operations, balance sheet, income tax return document and bank statements respectively. Concentration has to be made on the revenues, the expenses, and profitability factors. Take note of gentle costs or conditions that could be really expensive to replace.
Evaluating business operations
Find out how the business works beyond the financials. The transition may be more difficult if the business is locked into current owner relationships or skills. Inquire whether the owner plays a part in the business and whether they are prepared to train or backstop during the handover period. It is how to create a smooth operational transition to satisfy the customer and employees.
Determining the true value
How to value a business accurately is important to ensure you don’t overpay. You can value something by looking at the industry’s cash flow, assets or comparable sales. The asking price is generally negotiable, but they will take an offer based on good math. Consider those little things which might be a business strength or weakness in the future .
Securing financing
If you intend to purchase a small business you will require a lot of capital. It may be difficult to catch the attention of traditional lenders if you don’t have a detailed business plan, financial projections and a down payment. Another arrangement common with small business acquisition is seller financing, in which the current owner permits you to pay part of the purchase price over time.
Legal considerations
There are many legal steps to acquiring a business. They involve preparation of purchase agreement, transferring of licenses or permits, contracts with suppliers, landlords as well as employment contracts. Consult with a lawyer with information on the laws of the jurisdiction and whether the purchase has disputes or prior concerns relevant to the business.
Conclusion
Purchasing a small business is quite a challenging but very fulfilling process. When you own your own business, there’s the potential to live out your financial freedom, creative control, or whatever else is on your mind.
