Buy an ailing or healthy one?
First, you must consider which business to buy: Is it an ailing business or healthy one. Each of them has its own advantages and disadvantages.
In general, ailing business costs less but requires great care and resources to get it back on track. On the other hand, thriving business with healthy cash flow cost more but only need to managed right to keep it, at least, on track.
No matter whether you buy an ailing business or a healthy one, make sure you buy the real established business, that have these criteria met: It is in a thriving, if not growing market, and the products or services offered are on demand.
How to buy the right established business
Some special cares should be taken into account in acquiring established business.
Firstly and most obviously, you would want to invest in a business that fascinate you.
Being fascinated doesn’t mean you have to buy a business that is also your hobby or interest. You would want to make sure that you buy a business that you love to manage and returns your investment well. Make sure you have several choices to give you options, the more the better, and gradually narrow down your choices.
Second, you need to investigate the reasons why the owners want to sell their businesses.
If the reason is due to the poor performance of the business, you need more feasibility studies to determine the risks you are facing. Even if you buy a thriving business, you need to validate the income claims and other claims the owners made in their sales proposals.
Third, you need to decide on funding methods of your purchase.
How will you purchase the business? Business loans, personal fund and investors’ fund are some of the most common routes. Whichever you choose to fund your purchase, make sure you can afford the monthly payment of principals and interests.
Fourth, you need to know your rights and responsibility coming with the purchase.
A small business is a complex business entity. You need to know whether the business you want to acquire is free from any lawsuits, debts and other liabilities, including any hidden charges – Or, if they are present, make sure the business owners list all of them in their proposal. Furthermore, if possible, asking for the owners help in ownership transition proves to be beneficial move for you.
Fifth, business purchase negotiation and deal finalisation
Review the contract proposal and be ready to take it into the negotiation arena. Make sure you are not alone in this – Hiring a lawyer can save headaches later on. The next common logical steps would be: Purchase price negotiation, payment process upon agreed purchase price, sign the legal papers, and finally, register the business appropriately.
Buying an established business is not as simple as you think – Nevertheless, doing it right will give you excellent asset and income.
One last advice: Make sure you partner with someone that has doing business transaction on regular basis – Partnering with a lawyer specialising in business transaction would be a great first step in getting you into entrepreneurship and business investing.
Ivan Widjaya
Buy a business
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