What Should You Look For When Buying A Business?

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Are you considering buying a business? If so, there’s a lot you need to know before you plow ahead. Luckily for you, we’re here to help! 

Buying an established business is a fantastic way to leverage an operational infrastructure and brand to make a profit immediately. However, it can also be a risky move to take. Without the proper knowledge, you could easily make mistakes during the purchase process or purchase a business that isn’t what you expect. 

To avoid these issues, there are a wide variety of different things you have to look for. For example, you need to perform due diligence and evaluate the business’s financials.  

In this post, we’re going to show you the most important things you have to look for and do when buying a business. Our advice comes from specialized brokers so you can rest assured we know what we’re talking about. 

Carry Out Due Diligence 

One of the first things you should do before proceeding with the purchase of a business is due diligence. Due diligence is an important step to take because you need to know what you’re getting yourself into before it’s too late. 

To put it simply, due diligence is the process of researching and confirming that what you’re buying is exactly what you expect. During this process, you should get as much information as possible so you can identify any weaknesses the business may have. 

Check Business Entity Status 

If the business you plan to purchase is a limited liability company or a corporation, you must review entity documents and any related records like operating agreements, bylaws, and resolutions. 

You should check to see which state the business is registered in and whether it operates as a foreign corporation in that state or another state. 

It’s also a good idea to certify that the owner of the business has the legal right to sell it. 

Consider The Business’ Reputation 

It may seem quite obvious but you seriously need to evaluate the reputation of the business you plan to purchase. In the world of business, reputation is everything. The last thing you want to do is buy a business with a bad reputation as that will reflect badly on you. 

The easiest ways to evaluate a business’s reputation are to read online reviews, check for any red flags, and see how the media talks about the business. 

Look For Business Permits And Licenses 

This one is easy to overlook but it’s still very important. Looking for business permits and licenses should be part of your due diligence process.  

If business licenses aren’t valid or in place, the operation of the business could be interrupted after your takeover. This issue can only be avoided by verifying the necessary permits and licenses before you buy the company. 

Without the required permits and licenses, you could be liable for fines from local, state, and federal agencies. 

Get A Good Picture Of Operations 

You can’t possibly commit to the purchase of a business without first looking at how it operates. Getting a good picture of the how, where, and what will help you identify any potential operational problems before you make the process. 

You should make sure the business is running smoothly before you buy it. You don’t want to make the purchase to then find out the business has lots of operational problems that are now your responsibility. 

Things you should check include manufacturing operations, capital assessment, supply chain management, and capital expenditures. 

The Assets Involved 

It is also important to look out for everything you receive as part of the transaction. Ideally, the seller should provide you with a detailed sheet that lists all the assets and their value that are included in the deal. 

When it comes to intellectual property, confirm ownership of any trademarks, patents, and brand names. 

This due diligence will guarantee that you can protect the most important assets of the business. 

Employment Checks 

Make sure you check the current employees the business you hope to purchase has. More often than not, new business owners have to continue to employ staff on their existing contracts.  

Therefore, you need to understand the terms and conditions of every employee’s contract as you will be responsible for following them. 

The main concern you should have is how much the current terms and conditions are going to cost on a monthly and annual basis. 

Final Thoughts 

These are the key things you should look for when buying a business. You can’t possibly hope to buy a successful business without first looking at these key areas. 

By looking at these key areas, you can understand the business better and make a better judgment call when it comes to your final purchase.