To Buy or Not to Buy: 4 Questions to Consider Before Purchasing a Business
Buying an existing business can be a bold move that pays off, or it can be the biggest risk you’ll ever take. There are many unknowns in purchasing a business that is already up and running. We understand that the entire process can seem intimidating and overwhelming. However, if you scrutinize the situation and take time to consider the big questions, buying a business can pay off in a huge way in the long run.
1. Why do you want to buy this business?
Answering this question requires some self-examination. Perhaps the answer to this question is easy—it is a good investment. It is one of your favorite stores or industries, and you would really enjoy it.
Think it through. Do you have enough experience in this particular field to be successful? It is exciting to consider buying a business. But, the “newness” of the purchase may eventually wear off. Will you be stuck with something you don’t really want to maintain?
2. What are the company’s biggest challenges right now?
Owners look to sell their company for a variety of reasons. They may just want to retire. Alternatively, the business may be in dire financial straits, and the current owner does not have the capital to address problems.
Consider what the company’s most significant challenges are right now, today. If the business is going to need substantial improvements or adjustments, do your due diligence before you make an offer. Let MaxwellDunn help guide you through the legal ramifications of the business’s existing challenges.
3. How much capital do you really need?
When you purchase a business, you not only need capital to buy it, but you also need funds to maintain it. You will need to cover immediate expenses like inventory, rent, utilities, and payroll. Do not overlook how much working capital you will need on day one.
Review cash flows, daily ledgers, and talk to the current owner about regular costs. You may need to consider opening a line of credit with a financial institution to deal with any unexpected expenses.
4. How much is the business worth?
It is easy to get caught up in the excitement of purchasing a business, especially if this is your first time buying a company. However, you should never overlook the most important aspect of the purchase—whether you are paying a fair price.
There are several different valuation methods available, and you may want to consider going through each one to be absolutely certain that you are not overpaying.
MaxwellDunn can help you answer these often-complicated questions. Reach out to our team to schedule an appointment today.