8 Tips on How to Buy a Business

Have you ever thought about buying an existing business such as a franchise or a viable business from another business owner instead of creating one?

A very close family member of mine is buying a business. We discussed the necessary steps that are part of the due diligence process especially when there are investors involved.

I asked a good friend of mine, Kyle Griffith, a New York business broker, who helps privately held companies sell their business to provide some tips that will ensure the process of buying a business is a smooth one.

Here are eight tips that Kyle suggested every potential buyer should take heed to when buying a business.

  1. Obtain the most recent prior three years of financial statements such as Balance Sheets, Income Statements, and Cash Flow Statements for you and your accountant to review.
  2. Obtain the marketing plan of the business to gain an understanding of how this business obtains and maintains its customers
  3. If there are investors involved, have a lawyer review the terms of the contract and have an accountant review the numbers in regards to what the investor is requiring.
  4. Review the Lease Agreement if the seller rents “space.” You want to know the duration of the lease agreement and what are the terms and conditions of  it.
  5. Identify where the business is generating income from. The financial statements should give you an idea of the source(s) of revenue.
  6. If there is equipment or inventory involved, identify what the value of the equipment and/or inventory is and is it owned or leased.
  7. Evaluate what systems and/or processes are in place.  When you think systems/processes, think McDonalds.  For example, there is a process in place to make a Big Mac. This is very important because you want to ensure that you are buying a business that has value based on a model for success. In addition, it will significantly reduce the time and money you will potentially have to spend on hiring an outside consultant to get you up and running to learn about the business.
  8. Hire an accountant and a lawyer for legal and financial advice once you have done your due diligence in gathering all the necessary documents i.e. financial statements, lease agreement, and etc.

There is so much due diligence that is required when buying an existing business. You want to avoid as many landmines as possible.

Whatever you decide is a more viable option, buying an existing business that has demonstrated a winning formula for success or creating a business from scratch, a foundation of success is essential. Good luck!

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