SCORE helps clients with starting a new business or buying an existing business and then volunteers continue to mentor throughout the process.
This article focuses on buying a business, which is selling products and/or services to an existing customer base.
Prospective business owners must first decide whether their background is in manufacturing, wholesale distribution, retail or a service-oriented business. Your present knowledge of the product line is secondary.
Unless you are in direct contact with a potential business for sale, enlist with a business broker to have a professional seek out the seller who matches your area of expertise.
When the seller shows interest and you obtain the initial data and purchase price, start your analysis and homework by determining the full product line or services offered. Your goal is to be the expert and make the company grow.
Some of the initial areas to investigate are: the reputation of the seller, their competition, longevity of the product line, the same with the industry, the locations’ future, type of customers and number of employees and their abilities.
If the outside appearance is in order, start the review of the inner workings. Particularly the financial structure, starting with the business value. You’ll need your accountant to start the analysis of several years of financial statements. Make sure all taxes are paid up to date and compare your determined value to theirs.
Beyond financials, it’s also a good idea to discuss their vendor relationships, whether you would be renting, leasing or buying their property, their existing employees and their history with the company, as well as how they are paid and available health insurance and other benefits. Other aspects to consider: Are there any pending lawsuits, unions and business liability coverage?
Since you would be buying an existing business, the customer base is integral. You cannot reach out to the customers at this stage. However, it’s important to obtain the customer list to review invoicing, pricing and determine how many customers the business has.
Another consideration is potential business growth. Will the business remain stable or is there potential for it to expand? I knew when I bought my business 32 years ago that I could grow it. Over the subsequent 30 years I put a lot of sweat equity into it. Growth may be possible, but may require additional money, which is yet another consideration for would-be-buyers.
There are many more considerations before deciding to buy a business, but perhaps the most important is to enlist the help of professionals. As mentioned previously, having an accountant is essential. An attorney helps with the negotiations and business structure. A business insurance representative will protect you from any liability issues that arise. The business broker ensures a successful closing for both parties.
Before taking the plunge, I suggest keeping these three things in mind: You will work longer hours than you may have worked before, initially there could be less vacation time and you will be taking one of the biggest risks of your life.
Despite the challenges, being an entrepreneur has its many rewards, chief among them being your own boss. If the stars align, I would recommend buying a business.
For additional insight on buying a business, contact Score Bucks County at 215-943-8850 or visit buckscounty.score.org/.
Steve Wolfson has been a SCORE Bucks County volunteer and certified mentor for a year. He purchased and owned a wholesale business for 30 years. Prior to that he started 15 businesses for major companies.