There are countless benefits that can be enjoyed from buying a business. Many of them are often why people decide to purchase a preexisting business instead of starting one from scratch. However, before you take the leap, consider the following points.
First, of all, understand that you aren’t actually buying a business. You’re only buying its assets. Amongst other things, the “business” encompasses far too many intangibles that, simply put, would be impossible to sell. The soon-to-be-former owner may have been a great salesperson, for example, or a respected name in the community, which helped bring in customers. Understand that things like that aren’t coming with, meaning you need to adjust your expectations and price accordingly.
Of course, this also means that, if you’re dealing with a corporation or LLC, you don’t end up buying the business through stock. This is the advantage of just buying a company’s assets. By simply purchasing them, you aren’t taking on any of their financial liabilities. Furthermore, your tax treatment will be much better by going this route too.
Speaking of which, even if you just buy a company’s assets, you can actually be taking on some of their tax issues (this is one financial liability that’s an exception). Be sure to ask the seller about payroll and sales taxes before you buy their business as, if they owe, you may end up owing too. Along with speaking to them about it, go to their state’s tax authority too and have them provide a clearance letter. This document will confirm the seller is current on all their taxes by your closing date.
You’ll find this process may take a while, but it’s completely worth it when you consider that the downside could mean losing money for someone else’s mistakes.
Lastly, make sure you understand if the property they use for their business is part of the deal. Don’t simply assume it’s just another asset. Even if it appears to be included do your research. If there is a lease, find out if you’ll be assuming it after the sale. Then, if that’s the case, know how much is left on it and if you can take it on “as is” (meaning the landlord won’t decide to tack on more to the rent).
Buying a business may already seem like a lot of work, but the above extra steps are essential to making sure you get what you want out of the deal and no surprises you don’t.