There are many business owners who decide to sell their businesses for many reasons. And if you plan on buying an existing business, you should know that it has its advantages and disadvantages. Remember that there’s still no assurance of success, even if the business you bought is already running. Your management, business decisions, hard work, and determination will still define your success.
Here are some tips to keep in mind if you plan on buying an existing business:
1. Know why the business is for sale
This should be the most important step you take when looking at a business for sale. Ask the owner a straightforward question on why they are giving up the business. The owner may give you an honest or complicated answer. So, you still have to exercise due diligence to verify that what you think you’re buying is what you get and not anything less than you were promised. Don’t be easily lured by businesses that are doing well but have no vision for expansion; also, don’t hesitate to invest in struggling businesses that you think have good potential.
2. Confirm the business’ entity status
Begin by researching and confirming the business’ entity status, meaning checking whether it is a corporation, limited liability company (LLC), or private entity. This is very important because this will determine if the person representing the business has the legal rights to sell it. Check and review entity documents, records such as operating agreements, etc.
3. Verify legal liabilities
You also have to personally look to see if the business has any existing legal liabilities. For instance, if the business is in the middle of a litigation, settlement, or lawsuit, if you become the owner, you might get yourself involved in the situation. Check if it’s properly registered, and no existing tax obligations or penalties. Checking legal liabilities is a crucial step if you’re a first-time entrepreneur.
4. Check if the sales and profits are not overstated
While trust is important, it’s also crucial to be very hands-on in verifying the proposal and contract presented to you. Among them is checking if the sales and profits presented are correct and not overstated. Many businesses rely on seasonal sales, so check if that’s within your business plan. If you can request sales figures for the past 5 years, the better and more accurate your data will be.
5. Ensure you’re not violating the Bulk Sales Act
The Bulk Sales Act is intended to prevent creditors from being defrauded by the secret sale in bulk of a merchant’s stock of goods. So, even if you buy the company, you have to check if it includes the bulk sale of the business’ products. This usually happens in businesses like retail, wholesale, or trading. Therefore, be sure to determine whether the purchase carries any liabilities.
Remember that there’s no shortcut to success, even if you buy an existing business. There are still many factors you have to consider to ensure that you’re getting what you’re paying for. Good luck!
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