If you're considering acquiring an established business, you may have some questions going forward. This month's article should help get you started.
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FN Newsletter Editor
The Do's and Dont's of Buying a Business
From finding the right business or franchise to buy, to finally accepting the keys to the front door - buying a business can be an extremely frustrating exercise. It is important that you plan and implement each and every step in sequence and avoid the many caverns on the road to completing the deal.
The following 10 points should always be in the back of your mind.
- Do not buy or invest in a business that you do not understand or are not familiar with. This does not mean that you have to know every detail of the management and operation of that specific business. Hopefully, you will receive specific training from the current owner. What it does mean is that you should, at the very least understand the primary principles of the business. We all understand the principles behind a retailer; buy product that appeals to the consumer at the lowest possible price and sell it at the highest price possible while maintaining the lowest overheads - simple! But, if the business you are considering is in the disposal of toxic waste, understanding the basic parameters of how the business operates and hence makes a profit could be completely foreign to you. The current owner of any business that is listed for sale will always tell you that running the business is relatively easy. It probably is relatively easy for the seller; he has had many years of experience that make it easy.
- The complexities and timing of the transferring of knowledge from the seller to the buyer is relative to the type of business that is being acquired. A business that is very seasonal, should have a minimum of one full year of support from the seller in order to learn what occurs and how to manage and operate the business with each and every season. Make sure that you have an agreement on how and when the support and transferring of the seller's knowledge will take place. As an example, will you require that the seller be available some evenings and/or weekends? Is the seller planning on taking a three-week vacation in Europe the day after closing?
- Before you buy a business, set a top price in your mind, that you can afford and that you think the business is worth. Don't ever be afraid or embarrassed to walk away. Don't become so involved in the actual "buying" of the business that actually consummating the deal becomes more important and exciting than the acquisition of the business itself. No business that I have ever seen is worth buying at any cost. Do not let yourself get caught up in the "its only another $25K" routine!
Read more here!
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