5 Important Considerations When Buying a Business

January 5, 2024

So, you’ve decided that you want to become an entrepreneur. While that’s great news, the work has just begun. There is a process to go through and a lot of questions that need to be answered, including what to look for when buying a business, how to evaluate a business, as well as what are the best methods for finding a business for sale and buying an existing business. You need to do your research to ensure that you buy the “right” business for you.  Here are five points that you should always consider.

What to Consider When Buying a Business

1) Know exactly what you are buying

If you are buying a business, you need to be clear on what exactly you are purchasing. Are you buying the shares of a company or the assets? There are financial considerations for each of these scenarios that you need to understand. For example, if you are buying the shares, you inherit the employees and any potential severance costs. If you buy the underlying assets of a company, things such as equipment, receivables and goodwill, these assets can be depreciated and deducted as an expense. Make sure you are clear on the impact your decision will have financially. 

2) Get a proper valuation of what you are buying

You should always get an independent valuation of what you are buying, whether you are buying the shares of a company or the underlying assets. Even if you are very familiar with the industry you are buying into, you should hire an expert who knows how to price a business for sale. An experienced and qualified valuator will know the underlying value of the significant assets you are buying. The estimate of value they provide will be based on the condition of specific assets and comparable transactions.

Read More: How to Find the Value of a Business You Want to Buy

3) Understand the legalities

Understand the type of business you will be buying. The type will determine the taxes and the legal liabilities that will become your responsibility. Common business entities are partnerships, sole proprietors, corporations, and limited liability companies (LLCs). A sole proprietorship is an unincorporated business with a single owner and partnership is when there are two or more people contributing funds, labor, or property to the ownership of a business and sharing in the losses or profits. A corporation has dedicated shareholders who provide property or money in exchange for the company’s capital stock.

Make sure to evaluate the legal structure of the business, its permits, contracts, and licences and whether there is any ongoing litigation. Have an expert review these and any other potential legal issues that might impact future plans or operations. Confirm compliance with industry regulations and zoning laws. 

4) Find a business with the right fit 

Make sure the business you are buying is a good fit for your background, talents, strengths, and experience. You should also make sure it is in a location that is suitable for you. Will you have to travel far every day? Are you willing to do that? Try to ascertain why the owner is selling. Has new competition opened up nearby? Is the owner simply tired and wants to retire? Your new perspective and fresh energy may be able to enhance the business.  

5) Seek out professionals 

Don’t hesitate to reach out to professionals who can advise you. For example, a business brokerage firm is an excellent resource for information on how to find a business to buy. Partnering with a business broker service brings multiple advantages to the table while helping you avoid surprises. Not only will a business broker have access to and knowledge of many businesses available for sale, but they can also help you with financial due diligence, perform independent valuations and help with financing options. What’s more, business brokers can introduce you to a network of related professionals who can provide the expertise and guidance you need to make the right decisions. 

The decision to buy a business is a big one so don’t be shy to ask for help in areas where you may lack knowledge. A licensed business broker like Investiprise can advise you and assist with any hurdles you may encounter.
Contact us if you have any questions about how we can help you buy or sell a business in the Greater Montreal area. Our team of expert business brokers provide confidential consultations with zero obligation. Browse our listings to find the perfect opportunity for you. Your next adventure awaits, and we’re ready to guide you every step of the way.

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