What to Look For When Buying a Business

Running your own business is something that appeals to many individuals. While it might be tempting to jump into the first opportunity that presents itself, taking the time to thoroughly evaluate the situation will go a long way toward eventual success. Knowing what to look for when buying a business will make the evaluation process less stressful. Let's take a look.

1. Do a financial analysis
2. Evaluate the tax implications
3. Hire an independent accountant
4. Confirm business culture
5. Perform market analysis
6. Review legal compliance
7. Audit brand reputation
8. Assess asset and inventory value
9. Determine intellectual property

Do A Financial Analysis

Is the business you are looking at in a sound financial position now? Taking on a failing business may bring you more headaches. Take a close look at their books and financial records to see where they stand. If possible, check out the past few years to see if there is an upward or downward trend. Does the business appear to at least hold steady regarding success?

Evaluate the Tax Implications

You should take into account the business. Depending on what business structure is in place, the way taxes, debts, and profits will all be handled. There are four types of business structures you will encounter. They are sole proprietorship, partnership, limited liability company, and corporation. 

A corporation is considered a separate entity from those who own it, which is often several people. While there is no personal risk, a corporation can be sued as though it were a person. The LLC is a mix between the sole proprietorship or partnership and a corporation. This business structure offers versatility, but they are governed by individual states, so the rules change depending on where the company is located. 

A partnership splits the ownership between two or more people. There are three types of partnership and the tax laws are similar to those of sole ownership. Sole ownership means you are wholly responsible. With this structure, there is no differentiation made between you and the business.

Hire an Independent Accountant

While it is very likely the company in question is being upfront about its finances, there is always the chance that you aren't getting the whole picture. Just to make sure you are getting an accurate assessment of the financial situation of the company you are considering, hire an independent accountant that has no ties to either you or the company. Be willing to listen to the accountant with an open mind, no matter how much you may want the business or any disagreement the seller may put up.

Confirm Business Culture

If you are considering buying a business, we can assume you have taken the time to evaluate your working style, strengths, and weaknesses. You have come to the conclusion that you do have what it takes to run a business independently. Now, you need to determine if you can run THIS business effectively. 

Businesses themselves have a type of personality and not everyone is comfortable running every business. For example, does your personality, beliefs, and general lifestyle fit with the merchandise or service that will be offered? After all, a religious goods store and an adult book store need different management types. 

Do you feel comfortable in your ability to run this particular business? If you had to sell the business, could you muster up the passion and enthusiasm to convince someone how great it is? Make sure you will be happy in a place that will take up a great deal of your time.

Perform Market Analysis

Think about the location where you will be doing business and ask yourself if the economy of that area can support a business like yours. Also, ask if the kind of business is one that will fare well in the area. For example, you are very unlikely to see success if you try to open up a BBQ restaurant in the midst of a vegan neighborhood that is noted for animal rights activists or people who regularly follow fad diets.

If you are looking to be located in a small town, how many other businesses will you have to compete with? This question is also pertinent to larger areas, but there will be more a matter of a particular part of the city rather than the whole town. Check out your competition and how they are doing. If you believe there is a spot for you, then go for it.

Review Legal Compliance

Ensure the business that you are looking to acquire is compliant with all applicable laws and regulations, including licenses, permits, contracts, and any potential legal liabilities. It's a good idea to educate yourself on state and local laws and permits.

Audit Brand Reputation

Assess the business's reputation and brand image among customers, suppliers, and partners to gauge its market position and potential for growth. A quick Google search can go a long way, but you will want to hire a professional to understand true customer perception of the brand.

Asses Asset and Inventory Value

Assess the value and condition of the business's physical assets, equipment, and inventory to ensure they are accurately represented and in good working order. You don't want to find out that you need $20,000 in new equipment 30 days after the sale.

Determine Intellectual Property

Review if the business has any intellectual property assets, such as patents, trademarks, or copyrights, and assess their value and protection. If the business does not have intellectual property yet, is this something that will be needed in the future that will fall under your responsibility?

Final Thoughts

Now that you know what to look for when buying a business, do your homework thoroughly. If all the above check out favorably and you still want to take the leap, go for it. If there is any doubt, hold off for now and look into other opportunities. In the end, the extra initial investigation will pay off. If you have any further questions, do not hesitate to contact the MB Group team.