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Friday, January 30, 2015

Looking to Buy a Business? Here Are Some Key Factors to Consider

By: Peter Lamont, Esq.

If you’re ready to be your own boss and looking for a business to buy, you’ll want to consider carefully some key factors that can make the difference in how successful you’ll be. Here’s are important issues you’ll want to consider.

A Good Fit.

Some lucky people manage to make a career out of doing what they love so much they’d probably do it for free. So shutterbugs who’re never without a camera in hand open photographic studios. That’s nice for them (although no guarantee of success), but it’s not necessary you only pursue a personal passion when selecting a business.

Granted, you should avoid getting into a business you absolutely hate (life’s too short). But even more than finding a business that fascinates you, your goal should be finding one matching your knowledge, experience, and talents. Assess as objectively as possible your areas of strength and weakness, so you can match up the particular demands of a new business with your abilities. If you’re going to need help in a specific area, plan how you’ll get and pay for it.

Locating Opportunities.

Ask around. Word of mouth can be a good source for learning of businesses likely to come on the market, and people already in a geographic area or line of business you’re interested in hear shoptalk and are likely know of developing situations early on.

Other sources include: business brokers (for leads, but make sure to do your own analysis, not just rely on what a broker says); online and newspaper business opportunity listings; franchise offerings; and suppliers and vendors.

Do Your Research.

There’s no substitute for due diligence. Even if you think you see an attractive deal, don’t rush into it. Insist on access to full financial records – not just balance sheets, but cashflow statements, accounts receivable and payable records, tax filings, contracts, leases, licenses, inventories, property records, and employee records, including contracts and benefits.

If you need expert help reviewing this, get it. Learn the business’s full history, and listen between the lines for any hint of liabilities or problems. It’s far better to see potential trouble before it arrives; if it’s already here, you probably don’t want to buy into it. You know the old saying, “Marry in haste, repent at leisure”? It’s like that in business, too.

Know Why It’s Being Sold.

A related point: ask the seller (and anyone else who might know) why the business is up for sale. Listen carefully, and be prepared to ask follow-up questions. Your motto in this should be: No surprises.

Run the Numbers.

You wouldn’t buy a house if the mortgage payments meant you couldn’t afford to pay the property taxes or utilities. So even if you have a way to finance the purchase, there’s more to it. In buying a going business, you’re acquiring a cash stream. Estimate likely ranges for debt service and operating costs, then calculate how well your income is likely to cover it. After all, what’s left over is what you’ll have to live on.

Have a Business Plan.

Even if you’re buying a business, not starting one up, you’ll find a business plan very helpful in forcing you to think about, and try to quantify, your challenges and opportunities. Assess not just the business you’d buy, but also its customer base, competition, and place in the broader market. Your review should take into account not just the particulars of the business you’re acquiring, but also broader factors, like what impact can be expected from the business cycle. As the business adage goes, hope for the best, plan for the worst.

Get the Deal Right.

First-time buyers often overpay, so consider getting independent appraisals, and take a hard-headed, clear-eyed view of where you need to come out. Be prepared to negotiate not only price, but also other conditions (for example, a seller asking a higher price could be asked to help with financing).

Protect Yourself.

Make sure you have the business organization, insurance and legal protections you need. If you buy the business in your own name, without the protection of a limited liability or other corporate form, all your assets can be at risk to a setback or mishap in your new business.

Look for an experienced advisor willing to share practical ways to protect yourself and your new business. And good luck in your new venture.


If you would like more information about this topic or have general legal questions, please feel free to contact me at (973)949-3770 or via email at plamont@peterlamontesq.com Offices in: New Jersey New York, Colorado & Puerto Rico and affiliated offices throughout the country.

© 2010-2015, Law Offices of Peter J. Lamont & Associates. This Update is provided for informational purposes only. It is not intended as legal advice nor does it create an attorney/client relationship between the firm and any readers or recipients. Readers should consult counsel of their own choosing to discuss how these matters relate to their individual circumstances. This Update may be considered attorney advertising in some states. Furthermore, prior results do not guarantee a similar outcome.

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