Planning to buy a new business? Here are a few things you need to know before you take the plunge:
- Do your homework well-Get all your financials about the company right. Catch hold of a company lawyer and an accountant who’ll help you with the paperwork. Don’t underestimate the power of financials, a lot of questions you didn’t ask before the handshake could come up and you mustn’t hesitate to ask them. Remember you’re just at the ‘handshake’ phase, so take your time and ask your questions.
- Buy the assets not the business: If the seller is a corporation or LLC, avoid buying stock in his business, buy assets. Create a separate company to act as a purchaser. You’ll enjoy better tax treatment. Your tax will be calculated based on what you paid rather than what the seller paid a long time ago.
- Get to know the employees: Employees are always sceptical of new business owners. Make sure you spend some time with them, get to know them, their experience or work culture. You won’t be an outsider for them if you do this.
- Close off any overdue debts: If there are payments that need to be made to the seller by clients, be sure you fix accountability on the collection. Either you purchase the accounts receivable at closing (at a discount preferably giving yourself the benefit of doubt that the clients may never pay) or just let the seller collect it at his or her own leisure.
- Make sure the seller sticks around for smooth & complete transition: A handshake and signing of papers are not enough for a smooth business handover. Ensure that the seller makes appearances to the office, go over the books together, get him to introduce you to the top management or key clients/customers.
Remember, you’re not buying a business, you’re taking up responsibility for many lives that are attached to this business. Take time but make sure the transition is smooth in all aspects.
