Consider all the angles when looking to buy a business
This article looks at important considerations for Toronto entrepreneurs wanting to buy an existing business and where to seek support during the process.
Researchers estimate that over the next 10 years, an appreciable portion of Canada’s business owners will retire. This presents a unique opportunity for the younger generation to purchase these businesses.
In order for the next generation of business owners to succeed, they need to make sure they understand what they are getting into before taking the plunge. Asking the right questions and considering as many factors as possible beforehand could provide valuable information needed in order to make an informed decision.
Factors for entrepreneurs considering the purchase of an existing business
The cost of the existing business may actually be less important than other parts of the purchase. The following factors require careful research and consideration before agreeing to a price and completing the purchase:
· Pay more attention to cash flow than net income when valuing the business. While the “earnings before interest, tax, depreciation and amortization” metric provides valuable information, it fails to take taxation and capital expenditures into consideration, which could significantly affect the value of the company now and in the future.
· Not all businesses are created equal, so a prospective buyer needs to carefully consider what he or she wants out of the experience. Every industry and every business comes with specific challenges, and individuals need to consider this when looking for one to purchase.
· It would more than likely benefit someone looking to purchase a business to speak with the current owner. He or she may have insights and information the buyer didn’t consider or know.
· Prospective buyers need to remain realistic when it comes to their own abilities. A certain company may appear attractive, but without the appropriate skill set, the buyer could waste the hard-earned money he or she used to purchase it.
· It’s important to sit down and identify the pros, cons, and fairness of the potential purchase.
The above could prove invaluable in helping an entrepreneur choose the right type of business to purchase, but the considerations don’t stop there.
Getting through the purchase process
While many entrepreneurs focus on the business aspects of purchasing a company, numerous legal aspects require attention as well. For instance, simply signing a purchase contract without thoroughly reviewing it would be a mistake. Prospective buyers have important rights that require protection, and this cannot be done without scrutinizing each of the contract’s terms. Other legal issues future business owners need to address include those below:
· It’s important to protect the buyer’s legal rights throughout the process.
· Does the buyer understand his or her obligations under the contract?
· What type of business entity would best serve the new business owner?
· Have any red flags appeared in the transaction such as encumbrances or liens on the business that could jeopardize the company’s future?
These are just some of the considerations that will more than likely have a significant impact on the future of the business for the new owner. Consulting with a lawyer experienced with the legalities of buying or selling a business can help to identify other general and legal considerations needing attention prior to making the final decision to go through with the purchase and throughout the buying process.