Making the decision to purchase a business can be exciting and complex. Before you buy a business, there are many factors to consider. There are several things you need to know before you become a business owner.
Figure out Your Options
Before moving forward with purchasing a business, it is essential to consider how you want to purchase. You don’t necessarily have to buy the company outright. Each option has unique benefits, so it is critical to see which one will work best for you.
There are three main options when just comes to taking over an existing business:
1. Buy
Purchasing a business outright will give you the most control over your potential investment. You’ll be able to make decisions and change things up in whatever way you want. If you decide to buy a business, you’ll likely have complete control over everyday operations. Ensuring you know how to run things is vital since managing a business can be complex.
2. Franchise
Service industry businesses are regularly franchised. This option provides you with more direction from the brand owner. You pay an additional fee or ongoing royalties in return for the ability to run the business under the franchiser’s brand.
You’ll benefit from having a pre-established brand and business process. Many franchised brands are well known. However, since you’re not outright purchasing a business, you will have less control — you get an established business but most follow the brand’s rules.
3. Lease
Leasing is a good option if you want a smaller commitment. While you might have less freedom while leasing, there is also less risk involved. You must determine the extent of the contract, the time period you will rent for, the cost of the lease and any rules that come with leasing.
Only some businesses will be open to leasing. However, some businesses also allow you to lease with the intent of buying, which could lower your initial investment.
Look for Regulations
Most businesses come with a series of regulations. You’ll be held to a certain legal standard whether you’re looking to buy an agricultural company or a manufacturing business. Many laws involve environmental protections put in place by the government. You might have restrictions on how you use water, what pollutants you create and how you dispose of waste. Check out these rules and regulations before purchasing your business.
To be proactive about potential environmental regulations, consider using environmental corporate social responsibility in your business. You can arrange for your future business to track water consumption or use a sustainable waste removal system. Planning to be environmentally conscious will make staying on top of government rules easier. Additionally, you’ll likely improve efficiency and employee morale.
Finance the Purchase
Before you buy a business, consider how you will finance the purchase. While you could go to a traditional bank for assistance, there are other options you can consider. The government offers a variety of business-specific loans that may work for you. This government resource mainly provides loan options for small businesses, but it also offers disaster loans and loans for specific industries. You can also visit your local government to see if they offer grants or lending options.
Find out What You’re Buying
You’ll need to know the details of what you’re getting, whether you’re leasing, buying or franchising. When you agree to purchase a business — in part or whole — you might get that business’ assets. Will they give you their logo? Will you get their equipment? The U.S. Small Business Administration (SBA) outlines different types of assets that you should look for when purchasing your future business.
When you decide to buy a business, you must know if you’re just buying the brand name or getting company hardware as well. Determine if the following assets are included in your agreement:
- Tangible assets: These are reusable, physical items that a business regularly uses. A company car or equipment will fall under this category.
- Intangible assets: Intangible assets are abstract. They’re more difficult to enumerate in negotiations, as this category includes things like reputation or a professional network.
- Intellectual property: Ideas that belong to the company, whether they’re physical or abstract, fall under this category. You can list them on an agreement, including logos, company software, patents and trademarks.
You don’t necessarily need all of a company’s assets when purchasing your potential business. Get a list of the company’s assets and look over it yourself. Decide which assets you need and which you want. You might be able to negotiate for a better price or the best assets. Any negotiations are likely to go smoothly if you come prepared.
Do the Math
Knowing if the business you’re buying is worth the investment is crucial. Make sure the company you’re trying to buy has substantial projected numbers. While the industry might be doing well now, it’s in your best interest to look ahead. No one can predict the future and businesses have inherent risks, but you can take steps to make a good investment.
For example, Kampgrounds of America (KOA) produces a monthly research report and an annual camping report. That data presents their current numbers and predicts future numbers for their business model. If you’re considering buying a business, looking at data like that will be advantageous.
Be Prepared for Your Future Business
When you know what you’re getting into, the process becomes a lot easier. Research the type of investment you want to make and the rules that come with it. Planning for your future business can streamline the process and put you in a more secure position.
Jane Marsh works as the founder and editor-in-chief of Environment.co where she covers environmental news and sustainable living tips.
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