July 31, 2020 Last updated July 31st, 2020 1,063 Reads share

Checklist for Purchasing a Business

Image Credit:

Are you thinking about buying a business? It might be a great idea if you do your homework. It’s a complex solution that requires careful analysis of the physical property, financial reporting, and the relationship between the company and its customers, the community, and competitors.

Don’t try to do this analysis alone – get professional help to evaluate your business, especially if you do not have a minimum of three years of experience in owning and managing such a business.

The good news is, with a marketplace designed to buy and sell businesses, and with a certain preparation, the complicated process of purchasing an online business can go smoothly.

Why Buying a Business is a Great Idea

It is understandable why buying a business is so attractive. When you get the “ready-to-go” business you do not have to build relations from scratch – the business already has established relationships with both customers and suppliers. Then, you get the credit history together with the business and, if the company has a good profit history – financing will be easier to obtain. But the best thing is that transactions can start immediately; current stocks can be sold for immediate cash flow.

However, when buying a business you should know that the cost can be higher than starting from scratch, as you often buy “goodwill.” Also, existing problems may be hidden until you actually make the purchase. So, do not just dive in without thorough preparation and thinking.

First Steps

Here is a short checklist of the first steps:

  • Proof of business suitability
  • Do research online
  • Check a vendor
  • Check the reputation of the business
  • Analyze your competition
  • Establish business opportunities
  • Find your team

To be more detailed, first – search for your favorite business and see if it is suitable. Things to consider are industry, income, flexibility, and other components that are vital to you being a potential enterprise owner. Then do a thorough online search and discover as much about it as possible.

After that, you might want to get the vendor’s personal information, as well as personal recommendations. It is advisable to look at business ownership documents to check the seller. Ask questions and ask why they have decided to sell. Reputation is also a concern, so contact some of their customers, a few of their suppliers as well as their credit associations.

Think about the future – discover opportunities to grow your business and measure its possible future success. Consider if you could use the resources currently in hand to generate sales and determine the business’ longevity.

And finally, when you are good to go – seek help from business professionals who can often guide you through the various processes in terms of finances and legalities.

Thorough Examination

Of course, those first steps are just the beginning. Go deeper and explore assets – ask for a complete list of assets to sell and check their status. Make sure they adhere to the applicable regulations. If an asset is leased out, does it have terms within reach, and is taking over the current lease an option, or will the seller pay it?

Also, you should consider the state of intellectual property – get a detailed list that includes all trademarks, patents, trademarks, logos, etc. and check their ownership. Then, do not forget to examine business finance – get the details of the enterprise’s financial situation dating back three to four years. Find out if the business is one that you can afford.

Then you should thoroughly check the entire premises- get copies of all leases of buildings used and go and look at each of them. Determine if it is possible to continue to do business on the premises and if the rental conditions are appropriate. Will the development of facilities nearby have any effect of the business’ ability to generate income?

Don’t forget to browse the warehouse – does the existing warehouse include old or any unsold goods? Has your current stock level been depleted? If the answer is yes, you would need to look at how much it would cost to increase your stock.

Exploring insurance is also a good point. It is better to make sure all taxes and insurance premiums are current. Are there enough assets insured? Will you be able to get such coverage?

Pay attention to check permits, licenses, and all contracts – consult with the respective authorities regarding permits and licensing regulations for business and premises. It is also good to find out if transferring permits and licenses is an option.

Another thing worth attention is the employee database – get a database of employees with all their personal details including how much they each earn and their rights so you can balance the finances against the cost of employment. Will various personnel continue to work with you? And if not? What time frame is needed to hire new employees if current employees resign, and would this have negative consequences when starting a business?

And, of course, the business would be worthless without its customers. View customers and customer relations history of the business- view customers lists to see how strong the link is between the business and its customers.

Final Steps

To put it short:

  • Seek legal counsel
  • Verify Contract
  • Understand the non-competition clause
  • Permit to verify

More precisely, get a professional to handle the Sale and Purchase Agreement, the lease, and all the documents related to employees. Verify the contract or make sure that draft Sale and Purchase Agreement includes comprehensive guarantees, for example, the deposit should be due on the same date that the settlement is done and other very important regulations. It is vital that all the terms and conditions are thoroughly read through and checked before you sign.

And finally, if the purchase is subject to the approval of financing by your financier, the relevant condition must be included in the Sale and Purchase Agreement.

All in all, pay attention to the legal aspects of the purchase and consider consulting a professional in case you feel unsure about anything.

To Sum Up

When you make the decision to buy a business, it is important that you maximize your investment. It is imperative that you are well educated about the important process to follow so that you can be sure you are going to make the right decisions.

If you follow these steps carefully, you can be guaranteed that you will buy a stable and flourishing business.

businessmen shaking hands -DepositPhotos

Dmitrii B

Dmitrii B

Read Full Bio