Buying a business can be a very exciting experience, full of hopes and ideas and goals and dreams. It can also be a little overwhelming – scary even! There are so many aspects to consider, fears that crop up along the way, and thousands of decisions to make.
Here are some of the things you should consider and do if you are going to buy a business:
Have A Transition Leader
(This is someone like us here at Henry Jones, CPA.) Your team leader will engage experts as needed such as attorneys, insurance agents, appraisers and bankers. These experts are very good at what they do, but only have a partial view of your financial and business situation. You need someone who is well respected by them and can save you money by minimizing their fees, and save you time and aggravation by managing their involvement.
Get A Clear Valuation
You need to develop a clear understanding of the advantages and disadvantages of the business, including the valuation of the business and the effect of the transition on your personal finances and cash flow.
Another important step in investigating the advantages and disadvantages of the business is to perform proper due diligence procedures. An expert can work with you to ensure that the seller is not hiding anything. Having experts like us on your team can be critical for this reason: we have experience with many businesses and can uncover potential opportunities and threats. No one wants to be blindsided by business losses or closure, especially when they’ve just bought the business!
Explore Tax Considerations
You can often achieve tax savings of 20% or more of the purchase price by structuring your purchase correctly. This is like getting a 20% discount on the purchase price! It’s sort of a no-brainer. You can also minimize your ongoing tax liabilities by setting everything up correctly from the start. Don’t wait and be surprised later – do it right at the beginning and you’ll thank yourself later.
Set Up Initial Capital Structure
Another “do it right from the start” tip is to set up your initial capital structure so that the business meets your cash flow needs and is financially healthy from day one. Don’t wait till you’re struggling financially to deal with cash flow. Dig your well before you’re thirsty!
Establish Your Exit Strategy
Believe it or not, the best time to start planning your exit from the business is before you buy it. For example, assume that in today’s dollars you average $200,000 income from the business for 20 years and that you sell the business for $1,000,000 at that time. That’s $5,000,000! Your initial investment may be substantial, but if you do things properly from the start you can mine gold from your initial investment.
Negotiate and Close the Transaction
Again, we recommend getting an expert on board for the buying process. You need someone who is experienced in negotiating and closing transactions like yours from both the buyer’s and seller’s perspectives. The expert will know what to expect and how to navigate rough patches in the process.
If any of these topics surprised you, or if you haven’t worked through these steps thoroughly, not to worry. We have experience that can be invaluable, and we can help you cover all your bases.
So when you’re ready to take the amazing plunge, why not take us along for the ride?