Things to Consider Before You Buy a Business

Some things to consider before you buy a business:

1)      Some people fall in love with a business/concept vs. some fall in love with being an entrepreneur. The second group is under misconception that you’ll have plenty of free time if you own your own business.

2)      Many underestimate how hard it is to run your own business. Pluas, as I’ve learned, no one is as motivated to work hard at your business as you the owner are. So if you aren’t motivated to work hard, don’t expect your employees to be.

3)      Sit down and make a list of reasons why you want to purchase a business/purchase THIS business. Then separate the realistic ideas from the idealistic.

4)      Ask yourself why the seller wants out of the business? Ask the seller? Filter their answer for flim-flam.

NOW, if you find the seller isn’t shining up a pile of… trash, then ask/research business deeper:

5)      Is the seller running away from problem business? Is the market a dying area of commerce (eg. typewriter business in 1990 with personal computers taking over). Contracting area of commerce? Is a giant getting ready to squash the little guys (eg. Walmart crushing smaller chains of retailers)?

6)      Check on leases & whether landlord will let you assume and extend the lease (especially if it is retail)

7)      Now start hitting DUE DILIGENCE. Get 3-5 years worth of tax returns. Let CPA review. If records are poorly organized, watch out.

8)      Let CPA give you an idea of the value of the business. Many buyers regret overpaying.

9)      When you’re ready to move forward with an offer, call an attorney for further due diligence and contracts. Don’t chinz on this, you’ll regret it later.

10)   Be willing to walk away from the deal no matter how much you’re in love with the idea/dream behind the business.

2 Links: One to an article that discusses a little more in depth:

The other is on a merger Due Diligence list from the Sanders Law Firm blogs:

Call Kirk Sanders 336-724-4707