So you have already decided to become an an entrepreneur and buy an already existing business. While this is the best path to take, you need to understand that it comes with its own set of hassles. Because of these flaws and challenges, buying a business requires a strong-willed person. If you are the kind of person who gives up quickly, then this might not be the thing for you.
Regardless of how well-structured the business may seem, you need to be sure of what you are getting yourself into. This can be done by fixating on even the smallest details concerning the company from the seller regarding its operations, success, failures, and finances. Below is a checklist of everything you should review when performing due diligence on the business to ensure that you are making the right decision.
Business certification
The first thing to check is the business permits and licenses. This shows if it is legal and if you are certified to run it. If you are about to take over as the chief executive officer, you have to ensure that the current owner has not broken any licensing law. Most business sectors such as childcare, food processing or health industries require you to have a valid permit, and you, therefore, do not want to leave anything to chance. This is especially important if you are operation in a local area. For example, if you are looking for a business for sale in Los Angeles, make sure that the business is properly accredited to operate in California and is following all state and city laws in regards to the industry it is operating in. .
Certificate of good conduct
Business success is all a result of goodwill. This is the only way people are going to trust you and your services. One of the benefits of buying an already existing business is that you will avoid the trouble of trying to build a reputation. This is one of the biggest causes of startup failures, especially in the early stages. You cannot keep on with a business if you have no customers. For this reason, it is wise to ensure that you are buying into a well-regarded business since there is a likelihood that people will continue shopping with you even after the current owner is gone.
Consider the zoning laws
Avoid trouble by checking with your local laws to ensure that the business that you are about to inherit has not violated any laws or restrictions. These include the zoning laws whereby some localities do not allow for mixed commercial and residential zoning, especially for sensitive businesses such as nightclubs and bars which are mostly restricted from residential areas. It is advisable to do some homework on this to avoid later mix-ups.
Consider environmental rules and regulations
Has the business been following the local and states environmental regulations? You do not want to inherit ill conduct. For example, you do not want to sign a deal with businesses that have been exposing harmful chemicals to the environment and have at times gotten into loggerheads with authority. This may sound like a minor aspect, but it is of high importance as it could affect your business reputation.
Leases and other contracts
Another benefit that comes with buying an already existing business it that the company comes with all everything already set up. These include the premises and equipment. At some point, you may wish to lease out the equipment. However, you have to ensure that you have the rights to do so by looking at the contracts and legal documents needed to carry out the activity. Check any agreements that the current owner may have made with the customers and vendors and ensure that the revenue sources are well distributed.
Financial status
This is arguably the most important thing you need to look at. Before entering into a purchase agreement, make sure that you examine the business’s financials for the past few years. These include its balance sheet, sales records, cash flow statement, tax returns, account payables and advertising costs, among other things. These will highly determine if you are about to enter into a profitable investment or you are about to make the worst mistake of a lifetime. The business does not have to be currently profitable, but analyzing its income stream should give you a clear idea of what to expect.
When looking for a business for sale,, it is advisable that you look for different options before landing on the best. Performing due diligence on several businesses will help you to eventually get what you are looking for and ensure that you get into the agreement armed with all of the right informations. Do not make hasty decisions, as they could create a lifetime of loss and regret.