Buying an existing business is a whole other ball game than starting your own firm. There is an established financial condition, including existing debt. There is an established customer base, location, and business credit score. There is much to consider, and it can be totally overwhelming.
Here are some things to consider:
Third Party Financial Review
Just knowing that a business is full of customers is not an accurate measure of its financial stability. Even reading through the financial statements is not sufficient unless you are an expert. You need an accountant to look at the financials, analyze them, and give you a professional view of exactly how the business is doing financially before you purchase. Do not take the business owner’s word for it. In truth, they may not even know the real financial story.
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Get a Valuation
A business valuation will give you a true picture of what the business is worth. This can help you come up with a reasonable offer, and help the business owner understand the position he is in as the seller. A review of the financials by a professional is the starting point for this, so it would not be a huge step to have it done.
Discuss Debt Transfer
Are you taking on the business debt, or is it part of the purchase price? This is something that should be negotiated on and worked out in the very beginning. Of course, the review of the financial statements and the valuation have to be done first, in an effort to know the proper starting point. There are a few different ways this can play out. You can take over the debt from where it is, refinance it as part of your own, new business debt, or work it in to the purchase price.
A lender is going to want to know that you can run this business. Are you qualified yourself through education, previous experience, or both? If not, do you have plans to bring someone on that is qualified, if only for a short time for training?
Plan the Future Role of the Previous Owner and Employees
Some sellers want to get out—and stay out—immediately. Some are willing to stay around and help until you get the hang of things. Are you going to keep the employees, some of the employees, or start from scratch? Know the answer before you submit your proposal to the lender, and have your reasoning in order. They will want to know your plans before they lend you money.