What to Know Before Buying an Existing Business

Many do not want to start their business from scratch and choose to buy a ready-made business. What parameters need to be checked and taken into account when buying a business and how to make an acquisition correctly?

Read reviews

The first step is the simplest: search the Internet for reviews of the business you are planning to purchase. This is easy to do: there are many sites where not only buyers but also employees of the company express their opinions. Also, reviews can be found on marketplaces, if the business format suggests it.

Of course, not all opinions can be trusted, but the abundance of negativity should make you think: is it worth buying a business if so many customers are scolding services or goods?

Check the main parameters of the business

Be sure to check the basic parameters of the business through open government services. First, ask for an extract from the unified state register of legal entities: is the business formalized at all?

Secondly, find information about taxes, check that there are no arrears.

Thirdly, find out whether the company often sues and on what issues: all of a sudden there are proceedings, or your future acquisition has debts. A file of cases will help - you just need to drive in a company or individual entrepreneur.

All this will give at least some guarantee of the purity of an individual entrepreneur or LLC. Moreover, you can do it at any time and on your own. And if the "classified materials" are revealed already at this stage, it makes no sense to check anything further.

Request financial statements

It is important to study all the accounting records. This applies to expenses, income, invoices, tax returns. However, let's be honest: it is very difficult for an unprepared person without special education to do this. But this does not mean that you need to let everything go by itself and unconditionally trust the company's accountant.

There are two ways out. The first one is to hire a highly-qualified accountant to check the reporting on a spot. The second one is to order a full-fledged verification procedure for the entire business.

This is done by special companies. This investment will pay off in any case: either you buy a profitable business, or avoid being deceived by the seller for larger amounts.

Experts will provide a report on income and expenses, payment of taxes, the legality of all documents, the presence or absence of encumbrances and debts, the official or "gray" salary payment format, and will also give an overall assessment of the efficiency of the business and its prospects in the market.

Talk to employees

If you have made sure that all employees are officially employed, and there are no debts in salary payments, you should definitely meet with them personally. At least with employees in key positions: director, heads of departments and divisions.

This will allow you to find out how they relate to the sale of the business, whether they are planning to leave the company, whether they have questions and wishes. Pay attention to how they see further cooperation, whether they are loyal to work under the new leadership. All this plays a big role, because it is one thing to buy a functioning business, and quite another to recruit a team from scratch.

Solve the issue with rent

If a business owner rents an office or production facility, it is worth getting to know the landlord. What for? To find out if he plans to continue renting the area, if he is going to raise the price or change the terms of payment, and so on. 

Perhaps the landlord wants to make money on you and will raise the price by 30-50% in the hope that you will agree and do not want to look for new premises. You also have the right to independently check whether the person is the real owner.

Formalize the relationship according to all the rules

If all of the above points did not make you doubt the decision to buy a specific ready-made business, the last step remains - the transaction itself. I advise you to hire a lawyer to go through this stage in order to be sure of the correctness of all documents.

Depending on how the business is formalized - an individual entrepreneur or an LLC - it needs to be reissued to a new owner in different ways. So, if the business is owned by an individual entrepreneur, you acquire assets. After all, IP is the status of a specific person. What do you need to do?

To get started, issue an individual entrepreneur in your name, choosing the type of economic activity from the all-Russian classifier. Then, before signing the asset sale and purchase agreement, be sure to take a certificate from the business owner about the absence of claims from the spouse. In this case, you will be protected, and the transaction cannot be challenged, having been declared invalid.

The next step is the signing of an agreement on the assignment of lease rights, its execution with the lessor. Then - signing contracts with customers and suppliers. It is worth watching carefully so that the new terms of cooperation do not put you at a disadvantage.

Of course, the latter rule also applies when buying a firm. In this case, the acquisition of a business can occur in two scenarios. The first is the creation of a new LLC or JSC. Next, the old owner transfers all assets to the new one. But it should be borne in mind that suppliers or the landlord may not want to enter into an agreement with a new legal entity (and they have the right to do so). Therefore, it is necessary to know in advance whether the terms of cooperation will change.

The second option is to buy shares of the founders. The plus is that it minimizes possible problems with partners and clients. But there is also a minus: if the business inspection was carried out poorly, you will already be responsible for debts and other problems, having become the new owner.

Therefore, in any case, be sure to thoroughly and without haste check the business inside and out before buying. And do it in a team with a lawyer: deciding to save money on the services of a specialist, you can lose much more.