Things to Consider When Buying a Business
There are many advantages to buying an existing business. You won’t be starting from scratch and most often you will be acquiring a business with an existing customer or client base and regular cash flow. To ensure that this is the situation you should carry out due diligence whereby you investigate all aspects of the business before you buy. During the period before you actually sign a contract to purchase the business you should have regard to the following issues:
1. Why is the owner selling the business? – Is the reason believable? If a check of the financial records reveal no downturn in the profits of the business that is a good sign but you should also research if new competition is moving into the area or if the industry will be subject to a new form of regulation;
2. What is the financial position of the business? – This can be considered with the assistance of an accountant who will look at the financial records of the business. You should carefully examine the inventory i.e. a list of the goods and materials of the business and the assets and liabilities of the business;
3. What business structure will you use? – You can operate the business by various methods including as a sole trader, partnership or a company. Each has different legal and tax consequences;
4. What staff will you use? – You can continue to employ some or all of the existing staff which may help to maintain the smooth running of the business. You can observe the business during a trial period after you enter into a contract to purchase the business and this will help you decide which employees to retain; and 5. Transfer of lease or new lease? – If there is an existing lease over the business premises then you can obtain a transfer of that lease subject to the consent of the landlord. However, if you feel that you want the benefit and security of a new long term lease then you can negotiate that with the landlord and the contract to purchase the business can be made conditional upon that occurring.