Buying a Business

The Ups and Downs Of Buying A Business

Linkilaw Legal Advice

When it comes to turnarounds, there are plenty of bargains available for a savvy entrepreneur with a fistful of cash. If you have some startup history – and past success with turning a failing business into a flourishing enterprise – then jumping into a buyer’s market is right up your alley. After all, entrepreneurs are naturals at spotting a diamond in the rough, and you are innately hard-wired to make the best of a bad situation.

Conversely, if you’re new to the art of business ownership, there are plenty of do’s and don’ts to taking on someone else’s failure. Keep in mind, it might not be advertised as such – but honestly, is a  promising enterprise one that anyone would want to sell on the cheap? There will no doubt be many challenges to overcome; ‘flipping’ a business is certainly not an adventure for the faint of heart.

Before You Plunk Down Your Cash

The drama of a miracle transformation makes for great television. Have you ever watched “Kitchen Nightmares” or “Hotel Hell?” It may not be entirely evident, but these personal tales of ‘free fall to triumph’ only show a very tiny snippet of what it takes Gordon Ramsay to accomplish such makeovers.

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Without the benefits of station sponsorship and camera editing, we mere mortals must deal with the bare bones of a real-world exercise. So, let’s get back to reality. The following are several aspects to be considered:

Advantages of Buying a Business a ‘going concern’ include:

  • Investors or employees may be interested in partnering
  • Income is already flowing, hopefully
  • Location is established and locally familiar
  • Customer base is intact and data can be drawn from sales
  • Not having to start from the ground up

Disadvantages of Buying a Business may come into play as well, such as:

  • The price of an existing business is greater than a startup
  • Employees are probably suspicious, and anxious about losing their jobs
  • Clientele may be resistant to change
  • Deteriorated local vendor relationships may be a hurdle

Don’t Forget To Do Your Homework

Leaving due diligence to your commercial Realtor, or a business broker, isn’t the ticket with this type of long term financial commitment. It’s not necessary, or healthy, to assume the worst as you turn every page of the transaction. However, you should sink your teeth into the process, open your eyes and listen to your gut instincts. If your sixth sense is on high alert, pay attention.

Have an expert audit the books!

Unless you’re a paid financial specialist, don’t assume that ‘knowing your way’ around a spreadsheet gives you enough background to see where a company’s books went wrong (or if the figures are even realistic). A real expert is in order – one capable of digging deep enough to recognize employee theft, distorted vendor pricing, and less than honest partners or landlords when Buying a Business.

What does the staff think?

Try to meet the workers, managers (and even vendors) to elicit their points of view. Observe the working conditions, and how well the team interacts with each other. Are their skills being utilised in ways beneficial to the business, or have they been unwisely passed over by seniority or family members? See who takes the lead in a group discussion, and notice whether the others show respect for them when Buying a Business.

Real-world vs. a business plan…

Few small business owners are experts at putting together business plans; usually they employ accountants or sourced professionals to write them. Keep in mind that these documents are essentially created to show others (bankers, investors) a company’s forecast for stability when Buying a Business.

Therefore, any prospective turnover’s business plan should be properly reviewed by a business attorney. There is a story to be told in those pages of analytics and projections, and a forthright legal interpretation will shed much more clarity on the project ahead.

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What is the owner’s story?

Hopefully the person or partners who are selling the company will welcome the chance to sit down with you. Their answers to your down-to-earth questions about their hopes and dreams, as well as the ups and downs they’ve dealt with, will be invaluable.

Ask them what their original vision was when they first opened for business. How did they initially launch the business and its marketing, and what were some of the difficulties they encountered? What ideas were behind some of the wins and success they have experienced?
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