Entrepreneur’s Journal: Don’t begin a business — purchase one
Posted by: in Small BusinessFiled under: Entrepreneurs, Small business
A friend of mine, who has started several businesses, told me: “For my next venture, I want to purchase a company. A start-up is just too much work.”
He’s got a point. Let’s face it, the odds of failure for a start-up are significant. Besides, when purchasing a company, you can minimize certain risks, such as the product/service, customer adoption and so on.
And, with the soft economy, you might even get a good valuation (there’s a good piece on this in the New York Times).
However, before embarking on a buy, it’s a good idea to consider the following:
Don’t get into a deal frenzy: Over the years, I’ve seen a variety of buyers who were overeager to buy a business. The upshot: buying the wrong business for the wrong price.
So, make sure you take your time. After all, when it comes to purchasing a small business, there are usually few - if any - substitute bidders.
The Broker: A broker helps find businesses for sale. However, keep in mind that he or she represents the interests of the seller.
As a result, it’s a good idea to find an experienced advisor, such as an attorney or CPA.
Listing Sites: There are a myriad of sites that provide listings of businesses for sale. Interestingly enough, many are from brokers.
But, there are some third-party sites, such as BizBuySell (which is the largest in the industry).
Trust but verify: For example, suppose you are investigating a company’s books and you notice that contracts are missing. Perhaps the record-keeping is sloppy? Is the IRS being paid on time?
In other words, you need to conduct background checks, such as with credit agencies, vendors, customers and the local courthouse.
You may even learn that the owners don’t own much. To this end, you can check for so-called UCC-1 liens (from the county clerk’s office).
Liability Protection: OK, suppose you miss some problems, like a lawsuit? Well, there are ways to help reduce the danger when buying a company. One approach is to use an asset purchase. There may also be contractual protections you can include in the purchase agreement.
Yes, such things can be complicated - and again, having smart legal counsel is critical. Of course, there are some helpful books on the topic as well, such as The Complete Guide to Buying a Business.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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