Certainly, buying an existing business involves less risk than starting a business from scratch. If you are starting out in the business world, this can be an excellent option to invest, since it brings with it numerous advantages that we will explain to you next.
Tips for buying an existing business
To start, it is not always necessary to start from scratch. Therefore, an existing business may be your best option. This process allows you to skip steps. However, it is necessary to follow a structure.
Here are 12 tips you should keep in mind when buying a running business:
1. Evaluate the financial summary of the business you are going to acquire, as well as the taxpayers of the last five years. This will allow you to analyze the financial situation of the company, as well as its behavior.
An important fact is to verify that the data obtained is accompanied by a certification made by an accountant. The latter will increase the good reputation of the business that you will acquire.
2. Check the dates of the invoices issued. This is essential because it will allow you to know the accounts payable and receivable of the business in question.
Remember that the payment dates of a company usually go from 30 to 60 days.
3. Observe the work movement of the employees of the business, as these are a relevant asset in a company.
It is good that you have clear 5 key points:
- How long have they been working in the company?
- How many of them will stay in the business when you buy it?
- What can you offer them as a new owner?
- What initiatives will you have to streamline the work?
- Do you need to hire new employees?
4. Customers are one of the most important assets of the business. These must be solid and represent a benefit for the company that you will acquire.
If the majority of clients are solvent or, failing that, pay late, it is likely that most of them represent stability for your company. Otherwise, it is better to focus on finding another business.
5. The location of the business is a point that you should study carefully, it is crucial for the success of the company.
Consider if the place where you are is the ideal one. Similarly, ask yourself what benefits the place you are in brings.
6. The facilities of the company you plan to buy say a lot about the success it has and will have. Look closely at the physical assets that make up the business and think about what you would like to change.
Having a good first impression is ideal, however, if there is maintenance work to be done, keep it in mind within your budget.
7. Evaluate the competitive environment of the company that you will acquire and pay special attention to the movements of that industry. It is important that you know the risks and benefits of the sector where the business is located.
Knowing the problems and opportunities that could arise is imperative.
8. Check that all legal requirements are in order. Also, check that these documents can be transferred to you.
After having that clear, it stipulates what and how the transfer movement will be and how much it will cost you to comply with the pertinent regulations.
9. Talk to the customers, suppliers, and competitors of the company you have in mind. Also, talk to owners of other companies in the same sector that gives you faith in the operation of the company.
The way you perceive a business is crucial to succeeding in your new acquisition.
10. Plan when buying an existing company and organize an action plan to do it. Acting impulsively brings many risks.
Evaluate the costs of the business before acting and compare what the seller offers you with the reality of the matter.
It is a good option to seek help from experts in the field who audit the real state of the business. Similarly, knowing numerous options and comparing prices is necessary to choose the best company.
11. Act in function of maximizing the investment. A business in motion is not a guarantee of success if you do not work to achieve it. It is important to analyze the way in which the business has been acting and see what is necessary to change.
Therefore, you must make a new business plan, taking into account what has already been done, but starting with the necessary transformations.
12. Study the behavior of the cash flow of the last 3 years to be clear about the management of assets and liabilities.
Also, visualize the profits of the company in different scenarios and plan an action plan for the next 3 years.
Disadvantages of buying an existing business
In spite of the numerous advantages that the purchase of an established business brings, this also has a series of risks.
These are some of the disadvantages of buying an existing business:
- The cost can be much higher than that which would start a business because it brings with it a series of procedures already done that have a cost.
- Nothing ensures that customers who already have that company will remain there. This depends to a large extent on the work you do, however, customers can quickly leave with the former owner.
- As you can advance many steps, you can also acquire numerous debts that you may not be able to charge.
- The business brings with it a reputation that does not depend on you. You must work to maintain it or change it depending on the case.
- Changing work methods can be very difficult. Clients and employees have an established way of working. Changing it can be very difficult because surely most of them have been doing it that way for years. In addition, employees have a series of acquired rights that you must respect.
- Buying an existing business means taking care of everything your former owner has already built. In a positive or negative way, everything becomes your responsibility, from the payment of the staff to the debts, acquired that become yours.
- Many sellers offer only part of their business, which becomes a big risk. This would mean a greater expense for the use of the brand, the rent and the signing of contracts periodically.
- In the worst case, the accounts offered by the owner of the company you want to acquire may be manipulated. The normal (and ideal) is that this does not happen. However, you need to know the reasons for selling the business to avoid this risk.
- You may find outdated business plans. It is likely that the business you buy will not meet the new commercial and competitive trends.
Ways to buy a business
The purchase of an existing business can occur in different ways according to the specifications that these contract. These are some of the options:
- Sale of physical assets: The company sells its facilities, machinery, buildings, vehicles, among others, independently. These are partial or unipersonal sales, according to the business owner.
- Sale of intangible assets: brands, production methods, a patent, databases, among others, are sold.
- Sale of the company: If the company in question is legally considered a company, it can be sold completely. This sale may include all assets, tangible or intangible, or offer a stake in the company.
- Free transfer: The case may occur when a business is closing because it does not reach the objective set. In this case, the transfer can be done without any payments or contracts. This facilitates both parties to obtain benefits.
- Informal transfer: This is not the most appropriate way legally, however, it is quite used. It consists of selling the company without formalizing this transaction under any authority figure. This allows to reduce the costs of the sale and increase its speed. It should be noted that this operation brings with it numerous risks.
Legal aspects of acquiring a business
The importance of complying with legal requirements has been reiterated. Therefore, we present the fundamental aspects with which your business must comply according to laws :
- Registration in the Federal Taxpayers Registry (RFC), according to the sector of your company.
- Registration in the State Causation Registry (REC).
- Application for licenses for land use, building and construction in the corresponding municipality. This license expires after two years.
- Acquisition and opening license.
- Registration in the Business Register with the Social Security Institute (IMSS).
- If this is the case, endorsement by the Ministry of Health. This license lasts two years.
- Registration in the Business Information System.
- Property registration.
- Declaration of the acquisition of the business.
In addition, you should know the laws related to:
Commercial companies
- Acquisition of business
- Taxes
- Industrial property
- Data Protection
- Work
- Social Security
conclusion
Acquiring an existing business has many advantages because it allows you to start with a previous job, which avoids a series of steps.
In most cases, this procedure has more benefits than problems, however, if the proper procedures are not carried out, the risks can be many.
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