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Be careful that you have picked the right industry
Buying a small business may seem an exciting thing to do. Here are 10 Tips to bear in mind when acquiring a small business. Two things you need upfront to help you in this process should be a good lawyer, and a good accountant to help with examining all the financial records before you enter into the final contract.
1) Set your goals. It’s vital to understand exactly why you are looking to buy a business in the first place and set clear and realistic goals for it. You may wish your business to generate you an income every year.
2) Make sure you’ve picked the right industry. Be careful that you have picked the industry that will help you achieve your goal, rather than fufill an unrealistic childhood dream lurking in your mind. Always wanted to own a widget factory and noticed there are five on the market? Could that be because the market for widgets died a year ago?
3) Do your research. A quick Google search will give you dozens of websites and companies that offer businesses for sale. Spend several evenings doing your research here, to see what’s around in your chosen sector and geographical location.
4) Have an initial viewing. Now is the time to approach the business through their agent and learn more. Remember to stay subjective – just as when you’re buying property, you need to think with your brain not your heart. Listen to your gut feeling and don’t ignore it…
5) Do a reality check. Now you have the full information on the business – official and unofficial – you should take a step back and think it through. What warning signs have you seen in the business? No company is perfect, but do you have the skills to fix the problems you have seen?
6) Get the help.
You need professional help and informal help. Ask your accountant and solicitor to pore over the figures and contracts. It doesn't matter how much this costs ? better to spend a few thousand and uncover some potential horrors now, than 12 months down the line. Ask your partner and friends what they think. By this stage you may already be too close to the business to be fully subjective, so people whose opinions you trust may be able to provide a different set of opinions.
7) Get the money sorted out.
Just as when you?re buying property, you should have a budget in mind when you start to look for a business to buy and a general agreement of credit (especially with the banks? current hesitation to lend thanks to the credit crunch).
Now you've got a specific purchase in mind, get the credit formalized. Lenders will generally look for full details of the business you want to buy, including three years? accounts and financial projections. They may even ask you to put some personal assets up as a guarantee for the loan. Other sources of finance include potentially your pension fund, any existing business, or ?friends, family and fools?.
8) Make an offer.
If you don?t have a Attorney, get one now. Make your initial offer by phone and always follow it up immediately in writing. Use the term ?subject to contract? in all communication. This is the time to request conditions of sale, such that the existing owner stays within the business for several months during a handover.
9) Negotiate a great deal.
Don?t be afraid to push for the deal you want. Not that many businesses have sellers fighting over them, so as someone with cash to splash you are in a strong position. You and your solicitor will go through a process called due diligence, where you verify the information given by the seller. Find out why the current owner is selling and leverage it. If they want to retire, are they really going to jeopardize the sale of the business for the sake of a few thousand pounds?
10) Buy the business.
Once the lending has been settled, and everything has been transferred to you congratulations, you just bought a new business! Now the hard work starts. You have to fit into the business and understand it fully before you can start to make the changes needed to hit your original goals.Need help? Contact our office and we can help you plan short and long term goals for your new venture as well as prepare a detailed risk assessment of the business to ensure your personal assets are well protected.
The Law Offices of
Kawalski, Fletcher & Kirkpatrick, P.C.
3070 Bristol Pike
Building 2, Suite 204
Phone: (215) 774-1449
Fax: (215) 774-1060
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