Starting a small business is an equally exciting as well as frightening task. The market research, investments, and time needed to start a business from scratch can be tremendously draining for any entrepreneur. This is one of the reasons that many individuals consider buying an established business instead. They figure if a considerable amount of work is already done for them. This is certainly true, but in order to avoid a major catastrophe you need to take into account several potential pitfalls.
The first you might have suspected is thoroughly reviewing the financial books and status of the operation you are considering. The last thing you want is to buy the business and find out that sales have been dropping steadily for the last year. The nature of the documents presented is critical. Sales tax receipts, IRS tax returns, bank statements are all key to establishing the actual cash flow of a business. Having an independent accountant review the financial worthiness of the company is costly, but will certify that at least to the present, the business is in order.
The second issue to be cognizant of is the vendors required to successfully operate this endeavor. Despite the fact that most investors or owners will only buy the assets and not the liabilities of a company, the vendors may not distinguish between the previous and current owners. It must be made clear and in writing that you will only be purchasing the assets. A call to the vendors may prove beneficial though a complete change of account status is usually the best course to take. Changing the business name may not be required or even desirable, but may be the best option.
The last major issue to consider is the nature of the business itself. Is this is local business or is it national or international in scope? Is this the type of business in which the previous owner’s personality has actually driven much of the business relationships? Believe it or not, many people do not react well to change, and may often be reluctant to patronize the same store when it changes hands.
The occasional reference to the previous owner and how they did things or purportedly charged a lower price will likely come up. This can be especially challenging in small town or in a neighborhood setting where customer grow accustomed to seeing the same people. Determining whether you can successfully fill in and forge a new path beforehand is quite challenging but it is something to definitely consider.
Tags: Small Business