Many owners start their businesses from scratch, but sometimes buying a preexisting one can make more sense. The advantages can include strong brand recognition and an established customer base, avoiding a learning curve many new businesses face, and easier financing because the bank sees less chance of failure.
Whether the new owner plans to maintain its existing success or identifies potential for growth and greater success, due diligence is a crucial part of the process.
Important questions the buyer needs to answer
The buyer’s process should start with determining the type of business they want. It includes asking yourself some questions:
What kind of business? Perhaps the owner wants to own a restaurant, accounting firm, real estate agency or construction company. It could be a fresh start in a new field or a logical progression in their career.
What size? Pick a size that feels right, weighing whether the owner wants to spend time managing a large staff or something smaller and more agile.
Does it match my skill set? The seller can train new owners, but it still should be a good fit. Does it involve sales? Is it online or brick and mortar, or both? Are there partners they need to work with?
When to proceed with caution
Owners sell businesses for a variety of reasons. The buyer should determine why they are selling before they buy it. Red flags include:
- The owner is exhausted or burned out.
- The business is well-run but struggles.
- Financial records show a steady downturn or losses.
The ideal candidate
Despite the business being successful, the owner may want to sell anyway. Ideal reasons for them to get out include:
- They plan to retire.
- They are dissolving a partnership.
- They have health challenges.
- The business is booming, but they are looking for new challenges.
Outside guidance is often useful
It never hurts to have someone who can broker a fair and equitable deal, draft a purchase agreement, and review the ledgers for potential issues. An experienced business law attorney can provide these services and many others, giving the buyer confidence that they made the right decision.