When it concerns purchasing business directly from the owner, you should realize that this is an important step that means having to make carefully studied decisions which an entrepreneur must make after addressing a few important concerns.
Do Your Due Diligence
Purchasing your business straight from its owner (known as ‘business for sale by owner’) and without hiring lawyers or brokers means that there will be considerable amount of pressure on the buyer (you) to get things right.
When buying business privately without legal help you need to be your own broker and in addition you will need to do your own research regarding the business you intend on purchasing. Furthermore, the decisions that you will be making in regard to the purchase should not be made in haste and must in fact only be made after analyzing available facts. Once you have completed your own analysis, it is always advised to get your solicitor to go over the contract of sale.
Without a doubt when you purchase businesses from their owners you are entering into a deal that has many risks associated with it, but don’t be deterred, if you do it right you will have no issues and it can be an enjoyable experience.
Research the Business and the Owner
In case the seller is not making use of third parties in the sale then the buyer has fewer options available to investigate and determine how credible the seller is and also how true are their claims.
Selling businesses without a representative helps the seller reduce costs but it also enables them to hide important facts from the buyer.
Therefore if you are considering shopping for a business that is being sold by its owner you must look at the seller’s business related financial statements and be sure to find out that there are no outstanding debts owed by the business. This is the time to out source your own business accountant to revise the financials to make sure everything is in order.
Make Contact with Previous and Current Customers
In addition, you must ask the owner to provide you with names and contact details about the business’s clients (previous and existing) so that you can check with them about the value of the business you intend on purchasing and their experience when dealing with the business.
In case the business owner does not provide such information you can then use your own resources to find out from your own contacts in the city about the reputation of the business as well as of its owner.
Any Outstanding Debts
In the event that you find out that a business has outstanding debts, be sure to make sure the current owner honors these existing debts prior to the change over, or you can always use this fact to lower the offer price so that you do not end up with a higher financial load.
You need to also enquire whether the business is leasing out space or whether the business owns the property in which it (the business) is located. In case, the property is owned by the business you must then find out whether the property passes over to you after you buy the business.
In case the property is not owned by the business then be sure to enquire about how you can lease the property on a long term basis.
Purchasing a business for sale by owner does provide you with some notable benefits including getting certain kinds of tax breaks. Such benefits will of course differ from one state to another.
At the same time, you should also realize that though purchasing a business from its owner is an exciting thing it also means taking on a big liability. Therefore, you should act with utmost caution and outsource the services of your own legal team and accountant firms.
Author: Andy White
Andy White holds a Masters of Business Management and after a career as an Officer in the Australian Army, worked as a Business Consultant and now operates his own successful Real Estate business on the Queensland coast.