Things to Watch Out for When Buying a Business

Things to Watch Out for When Buying a Business

If you plan on buying a business, you will need to conduct what is known as "due diligence" before you make your final decision. This means that you will need to do some research and analyze the business you want to purchase, and these are the two major reasons for taking that step:

* You want to verify the details related to the business and the transfer of ownership.

* You want to provide accurate information to all parties related to the transferring a business.

You should also realize that the current owner will probably be performing some due diligence as well to determine if you are really in a position to buy a business for sale, and both of you will be looking for any problems and concerns that should be discussed before you close the deal.

Here are some things you should watch for when you buy a business:

* Learn something about the history of the business, especially in regard to profitability, cash flow, and any frequent changes of ownership.

* Determine if the business has been part of any legal proceedings, or if any such matters are pending that may have financial consequences for you if you decide to proceed with buying a business. You will also need to know if there are any tax issues that may become your responsibility, and examine the tax records for the previous five years for accuracy and completeness as well.

* After receiving a list from the owner, contact the vendors that supply the business, check the payment history, and discuss any problems these suppliers may have had in dealing with that customer.

* Before buying a business, examine a record of the company's income and expenses, looking for consistency. If the operating costs are too high, or sales have decreased significantly, these are waning signs that you need to look elsewhere.

* Remember to focus on the commercial property itself to see if there are any liens against it, and look for other problems as wellincluding pest control, building code violations, and fire hazards.

* If the business has numerous owners and some of them are silent partners, have each of them provide a written agreement indicating that they will cooperate with the sale. You should take the same step with any lenders the business has as well.

Other things you will need when you buy a business

Even if the business is a going concern, you will have to create a business plan to establish your financial goals and show how you plan to achieve them. (If you are relying on the financial support of a lender, your bank will want to ensure that their investment in buying a business is not at risk.) Also, when you buy a business, remember that you are going to need some operating capital to keep it running.

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