Questions To Consider When Buying A Business
When you make the decision to buy a business, you need to take steps immediately to protect your investment. Part of that is thoroughly researching the business you want to buy to ensure it is a sound financial decision. If you are thinking of buying a business, here are some considerations to make before making the purchase.
Are You Only Buying the Assets?
One of the most important decisions you need to make is determining whether or not you want to buy just the assets of the business or the business entity. There is a major difference between the two that could have a bearing on your investment for years to come.
When you buy the business entity, you are responsible for everything related to the business, including any debts it has incurred and lawsuits that are pending against it. As a result, it could be years before you are able to untangle the financial and legal problems that came with the business.
By contrast, if you are only purchasing the assets, you can take those assets and form a separate company. You also avoid being saddled with the liabilities from the business.
Have You Seen the Financial Records?
Another crucial step you need to make when buying a business is reviewing all of the financial records. Not only do you need to see the current financial records, you need to see the records for past years. The more information you have, the clearer picture you have of the business's financial situation.
In addition to seeing the records, you need to determine who will be responsible for accounts receivable of debts owed to the business when the sale is closed. If you choose to manage those debts, you will have to purchase the accounts receivable from the seller. Once that is done, you can focus on building a relationship with those customers.
Do You Have an Exit Strategy?
While in the process of buying the business, you also need to work on developing an exit strategy in case you need to sell it in the future. Having an exit strategy is especially important if you have partners involved.
For instance, if you want the option to leave the business at some point, you and your partners need to determine the factors that would influence the buyout price. By deciding these factors now, you can make it easier to walk away in the future, if necessary.
Work with your business litigation attorney to determine what other factors you need to consider when purchasing a business.