5 Things To Consider In Buying An Existing Business

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Venturing in a start-up business is a risk. You need to start from scratch, learn about the industry, establish your brand, etc. This is also probably the reason why some businessmen consider buying an existing business. Buying a business is less risky because the existing business is already generating cash. You just have to take over a continuing operation. (Source: Entrepreneur) But of course, you have to consider certain factors before acquiring an existing business. Here are some of them:

1. Type of industry

Both small and big business focus on selling/trading goods and services, but they still fall under certain industries. Some of the industries you can choose from include:
  • Agriculture
  • Food & Drinks
  • Medical
  • Real estate
  • Publishing
  • Electronics
  • Retail
  • Entertainment
Make sure that you are familiar with the industry of the business you will choose. You should be familiar with the products/services, competitors, process of manufacturing, and target market. This can help you find ways on how to make the existing business prosper. If you are not familiar with the industry, you can still acquire a business in that industry as the financer of the acquisition; provided that you would consider working with people who are familiar with the industry and with people that you can trust.

2. Status of the company

This refers to the overall status of the company. You have to know the following to know the status of the company:
  • Business registration – is it registered or not?
  • Financial status – is it near to bankruptcy?
  • Position of the business in the market – is it a big player or a small player?
  • Sales performance of the company at least in a 5-year span
It is better to choose a company that is registered. You can also choose a business that is near to bankruptcy provided that you know how to pull the business back up.

3. Accounting – Assets and Liabilities

Before buying a business, you should also be familiar with the current accounting status of the company which includes the assets, liabilities, equities and revenues. All of these depend on the type of business you are going to acquire and how will you buy it. You could buy partnership, shares of stock, or even just the assets.

Assets

Assets refer to the properties or items owned by a company. These things are essential to a company’s growth. These could be in a form of buildings, machineries, vehicles, office materials, or anything that could add value to a company.

Liabilities

Liabilities refer to a company’s legal debts or obligations. (Source: Investopedia) Liabilities include loans, account payables, etc. You should have a formal arrangement when it comes to paying those liabilities. Same as accounts receivable, there could be remaining debts from customers to the company you are going to acquire. There should also be a formal arrangement on how to settle those debts.

4. Taxes

Corporate taxes are part of having a business. You should be aware of the different types of taxes and how much these taxes would cost (even roughly). Remember, taxes vary in different states. There five types of business taxes for small businesses namely:
  1. Income Tax
  2. Estimated Tax
  3. Self-employment Tax
  4. Employment Tax
  5. Excise Tax
Other types of taxes may also apply depending on the type of industry. For instance, employment taxes include social security, Medicare, and income taxes. (Source: IRS) Since you will become the new owner of the business, the taxes of the employees will be part of your responsibilities.

5. Employees

A big part of acquiring an existing business is the employees. Eventually, you will be the new employer and you will have the power to let go or retain some of the employees. You should consider that these employees know the company from the inside. Hence, keeping some of them could spare you from long-term adjustments (hiring, training, etc.). But if your goal is to start fresh, you still have the option to hire new employees that are in line with your specific goals. Acquiring an existing business may not be easy, but if you consider these factors and work with professionals that you can trust, you can expect a great turn out.