Free Checklist When Buying a Business (Step-by-Step)
Buying a business can be a wise decision because starting a business from scratch is always and tiresome; however, you still need to take care of some important points while buying an existing business to get the most of it. There is a complete checklist about buying an existing business that can serve you in the selection of the best business. You should always consult buying an existing business guide to buy the best businesses in a best way.
What to Do Before Buying an Existing Business?
Regardless of other factors that play a role in a business purchase, you should always be vigilant about valuing a business. You should know that everything related to an existing business like lease, inventory, staff, equipment, shipment and advertising of different business types need some specific considerations. You should consider some questions before paying for a business like how does it access the customers? Does the business offer relevant products and services? What is the shipping process of the company? Furthermore, always make sure to ask about following things from the business owners:
All these factors should be a part of your checklist for buying a small business.
Follow This Buying a Business Checklist Step by Step:
Before you decide on buying a business, you should consider the different aspects of buying a business. It is always beneficial to go through a few things to avoid any complications in the future. You should consider all the tips when business buying that would be helpful for you.
Let’s dive into the checklist for buying a business in detail.
A) Decide a Business Type
When you decide to purchase a business, the first thing to consider is the type of business. The good reason for purchasing an existing business is its relevancy that may suit your future goals. You have to know what kind of skills you have to own the business. Make sure to approve the business purchase by the original franchisor. The business entity can be helpful in selection of the perfect business type.
B) Negotiate a Price
Negotiation of the purchase price is a thing that can make or break a deal. When you decide to buy an existing business, you must consider its worth. Every business has a unique value. You can hire business brokers for a fair valuation. Although broker’s services may cost you in the range of $3,000 to $5,000, but it would be a great step to save your time and to get the best deal. Upon negotiating via brokers, some sellers may actually give you discounts on the purchase price.
C) Verify Financial Information
Verification of financial information is an important step in a checklist of buying a business. It includes audited statements of business finance over the last three years. Keep in mind that financial statements for small businesses are compiled by the seller; therefore, your accountant should directly meet with the seller’s accountant to verify the cash flow statements, income statements and balance sheets. Furthermore, you have to consider checking the following documentations on your own.
• Credit reports
• Analysis of business expenses
• Tax return slips
• Gross profits
• Rate of return for each product
• Inventory of all the equipment, products, and real estate
D) Consider the Business Inventory
The complete knowledge of business inventory may help you understand the benefits of business buying; therefore, you should check the following agreements before making a deal:
E) Check the Intellectual Property and Equipment
Intellectual property and assets are the things that you must check before purchasing a business. You need to know their sale’s price and value. Intellectual property includes things like design, inventors and brand names. The company you are about to purchase should have equipment in the right condition. Don’t forget to check all the supply agreements and material contracts to know all about cash flow and penalties.
F) Business Valuation Method
Determining the company value is a complicated process; therefore, you should hire a chartered business valuator or a finance broker to know the business value. You can select the business valuation method depending upon the business type and available information. Some of the most popular methods for buying a small business in the suggested checklist are:
• Earning based methods
• Asset-based methods
• Market-based methods
All these processes are highly helpful to evaluate the business you are about to purchase.
G) Perform Due Diligence
Proper due diligence is one of the things to consider when buying a company. You have to assess its legal status, financial statements and inventory. Furthermore, you need to use in-house and outside expert services to perform due diligence. Get a detailed list of what the vendor is selling including equipment, buildings, customer list and prepaid expenses with intellectual property.
Buying an existing business is a great way to save both money and time that are needed to start a business from scratch; however, buying an existing business comes with its risks and the process may be somehow complicated. You should consider the necessary things to make an appropriate deal. To reduce the risks and get assistance from experts, you can hire valuation professionals. The experts can help you well to buy a business in Virginia and Maryland.