Purchasing a business is no small step. And before making the final move and becoming fully committed, you want to ensure you are fully aware of what you are taking on.
This process is referred to as due diligence and is essential for the buyer to know exactly what they are getting into. Due diligence involves conducting research on all angles of the business to ensure you have a good idea of its standing and reputation.
When done correctly, buying an already existing business can be extremely rewarding. Because you do not have to build a brand from scratch, you can focus on strengthening what is already in development, with an existing client base ‒ a far less risky maneuver.
But before you purchase a business, there are some key points to consider. We uncover them in this article below.
Why Is The Seller Selling In The First Place?
An important question to ask early on is why the owner is selling their business in the first place. Are they simply retiring or moving away? Or is there a more serious reason ‒ something that could affect your experience entering the purchasing deal? For example, is there an issue with the location or the landlord? Is the rent too high to allow for a decent profit? Is there a parking issue keeping clients away?
Critical information could be anything from financial trouble to earning a poor reputation among target customers. These points will help you understand how much work or reworking this business needs under new ownership.
Check Assets & Property
Assets are all tangible items acquired with the business, including plant, equipment, and the business’ intellectual property.
You will want to learn how long the property lease is and whether or not the landlord intends to renew the lease at the end of the term or redevelop the building. Moreover, you must check that all necessary approvals are available for the use of the property, such as whether certain business operations are legally allowed to exist in the location. It’s best not to assume that the current owners are running the business legally, and you should always double-check to avoid potentially harmful legal situations falling into your lap after you complete the business purchase.
Check Financial Records & Written Agreements
Obtaining financial information is critical, even if you’re buying into a sole proprietorship. Involving the help of your accountant to scan through the financial details from the past three years will help you understand where the business stands financially.
Written agreements with suppliers are essential as they outline the status of the working relationships, how many are currently active, and whether or not these suppliers and manufacturers have delivered their services in the most cost-effective, high-quality, communicative way.
You will want to know if there are any outstanding payments or debts. Moreover, you will want to have clear insights into the business’s reputation with suppliers and its customer base.
Buying a business is an exciting step and, when done correctly, can be exceptionally rewarding. Conducting thorough due diligence is a significant part of not making the wrong decision. At Rise Legal, we can help guide you toward the best possible purchasing decisions regarding buying a new business. For assistance, get in touch today.