Paul Horton: Buying a Business

Prospective entrepreneurs have several options other than starting a business from scratch, including buying an existing business or franchise. But before you write a check and get started, it’s important to do your research and understand exactly what you’re getting into. This section covers all aspects of buying a business, such as purchasing a franchise; buying an existing business; understanding valuation and accounting terminology; what to expect when buying a business; and more.

Buying a Franchise

If you are considering buying a franchise you may want to consider the cost. Start-up costs and royalty fees can put a serious damper on a franchisee’s take-home pay. For example, if you were opening up a popular fast food franchise, the franchisee must not only pay money toward the location, he or she must also pony up a large franchise fee for the right to operate the business for a period of years. After that time is up, assuming the company agrees to renew the contract, another franchise fee can be charged. The total monetary layout to open a fast food franchise can range anywhere from $500,000 to $1.6 million depending on the popularity of the franchise.

Make Sure You Have Liquidity

The amount of cash a company has on hand or can generate quickly reveals how healthy the company is financially. High levels of available cash indicate that the business can pay off debt easily when due dates occur. The types of assets a company has and the marketability of those assets are where a discussion of financial liquidity begins.

Findings a Business For Sale

To many, online business marketplaces would seem the obvious place to start when searching for an online business for sale. The internet is the largest business for sale marketplace and has seen rapid growth in recent years. Online business marketplaces are attractive as they enable buyers to look across the industry at a range of available listings, helping them to identify potential investment opportunities. Buyers are able to request additional information on listings, which automatically alerts the seller or designated broker (if represented). Most established online business brokers have a presence on such platforms, using them as an additional outreach channel.

What is Due Diligence?

When you are considering buying a business, conducting due diligence ensures you have access to important information about the business you’re buying. It’s the best way for you to assess the value of a business and the risks associated with buying it. You usually conduct due diligence after you and the seller have agreed in principle to a deal, but before signing a binding contract. The information you collect during due diligence is highly sensitive and confidential. The seller might want you to sign a non-disclosure agreement before you access this information.

Hire a Business Attorney

When you’re faced with a business issue that is complex, time consuming, or has liability issues, you should consider hiring a knowledgeable business attorney. If you are a startup or small business owner, you will want to look for a lawyer or legal team that identifies with the startup and small business culture. For example, a lawyer who runs his own small legal practice—a solo practitioner–will likely have the legal expertise you need, as well as an understanding of your plight as a small business owner.

Once you have selected the perfect lawyer for your small business, build a comfortable working relationship with him or her over time. You will want to reach out to your lawyer for counsel and guidance on substantive and non-substantive matters alike.