What do you need to know when buying a r

What is called a ready-made business: definition

"Ready business" is a concept that has become established for representatives of small enterprises with established internal processes. The project has already passed the stages of inception and receipt of the first income, and its financial profit has become stable.

Several criteria define such a business:

• continually release products or services;
• accounting activities are carried out properly;
• There are funds in circulation.

The project has already taken its place on the market. And buying such a business means that the ownership rights to assets, ready- made cases and business processes associated with them are transferred.

Is it worth buying a business: pros and cons

Assess immediately whether it is profitable to buy a ready-made business in a specific segment. Main advantages:

• the enterprise has already gone through stages of development and acquired its own history;
• the premises and equipment are available and have already been put into operation;
• distribution channels and connections with suppliers are established;
• The products that go on sale are already familiar to people.

Buying out an existing business is advantageous because the profit from it comes almost immediately. The risks of going broke are lower than when starting your own business from scratch.

There are disadvantages in this case too. The business was already actively operating, which means it could have earned a bad reputation and negative customer reviews at that time. The risks are related to paperwork, product quality and finances. In order not to fall into a trap, you first need to learn how to buy a ready-made business correctly.

What You Need to Know When Buying an Existing Business: 4 Questions

Buying an existing business is fairly easy. It is more difficult to check all the information about it before concluding a deal. We have prepared questions when buying a business that will help you identify the problem areas of the enterprise.

Is this business unprofitable or not?

The first step in checking a business before buying is to examine its profitability. The real state of affairs may be worse than presented in the documents. For example, there may be debts to suppliers somewhere.

Several factors that indicate that a business is unprofitable and has problems with it:

• the business has been operating for several years but has not yet paid for itself;
• he has debts to the bank or to suppliers;
• staff turnover - may indicate poor work organization or a lack of prospects;
• the company has a lot of bad reviews from customers;
• The company lags behind its competitors in terms of development, communication and marketing.

All these problems are solvable. But if the business has been functioning incorrectly for many years, you will have to invest heavily in it.

Often, unprofitability is associated with insufficient experience in management, organization of processes within the company. For example, incorrectly identified target audience or poor financial management will lead to losses.

Why sell a ready-made business?

Don't immediately think that the company is being sold because of internal problems. There are several popular reasons why this is done:

1. Relocation of a business owner - it is not always possible to move a small or medium-sized business with you due to the specifics of the audience in different parts of the world or even in the same country.
2. Fatigue - If the owner is losing enthusiasm and energy about the business, it is normal for him to decide to sell the company.
3. Reinvestment is especially popular when the owner has several businesses that do not overlap.
4. Disagreements between several owners, which affects the development of the business, profitability and prospects.

Buying an existing business is especially dangerous when it is sold by a famous person. For example, there is a businessman who takes projects from scratch, develops them to a high level and puts them up for sale. Sometimes the company becomes popular only due to the famous name of this person. After the change of owners, the business may lose part of its audience.

What about the company itself?

Before buying a ready-made business, you need to check and clarify all the details. Three methods have been invented for evaluation:

1. Income approach. It is based on calculating profit. With it, you immediately get the exact value of the company. However, the result will be in the moment, not in the long term - due to the instability of the economy, everything can change quickly.
2. Market approach. Its principle is based on comparing a business with other companies in the same industry. Prices are compared for different periods of time.
3. Cost approach. Its principle is based on the fact that the costs of doing business are considered in the long term.

When studying a business, due diligence will help you. This is a specific audit procedure from different points of view.

The audit is carried out by trained people who then give a full report on the current work, problem areas and prospects. With this approach, the following factors are studied:

• operational such as company history, staff feedback, efficiency of internal business processes;
• legal as the legality of documents and property rights;
• tax with the risk of audits from a government organization, debts;
• financial as indicators of income and expenses;
• Marketing such as competitiveness, prospects, customer feedback.

Due diligence costs quite a lot. But it can be considered as an investment in a definitely profitable business. For each of the points, specialists make an assessment, and then provide a general conclusion on the profitability of the enterprise.

What documents should you pay attention to?

Selling and buying a business is impossible without studying the documents. It is necessary to examine the following documents, access to which the owner can easily provide:

1. Certificate of company registration. With its help, you can find out whether the company is bankrupt, what lawsuits were associated with it, whether contracts were concluded with the state.
2. The company's charter. This specifies who owns the property rights, the types of activities. Sometimes the charter states that the business cannot be sold to third parties at all, which makes the transaction impossible. It is advisable to have access to the corporate agreement, which usually specifies the procedure for selling the business.
3. Financial statements. You need to check such indicators as the return on sales and capital ratio, the number of days of accounts receivable, asset turnover indicators, liquidity ratio. All this will show how easy it is to bring the business to a new level and calculate its prospects.
4. Tax returns. It is important to immediately understand how the company submitted reports to the tax service, whether it paid all taxes.
5. Loan agreements. It is important to understand the terms of payment for services and the expected payments on obligations.

You should immediately check the rights to what exactly you are buying. When the owner decides to sell an existing business, he must transfer the rights to the website domain, the land under the building, and the trademark to the buyer.

How to draw up a sales contract correctly?

The purchase and sale agreement is the main document that will confirm your ownership of the business. It should be as accurate as possible and such that there are no loopholes for fraud.

What should be in the contract:

1. Subject of the agreement. Specify everything that is being transferred in ownership, including parking in front of the building for 15 cars.
2. Details of the transfer of ownership from seller to buyer, at previously agreed prices.
3. Additional conditions such as validity period, rights and obligations of the parties, methods of resolving disputes.

It is advisable to use the services of lawyers at all stages. For example, they will help to check the current documents and cancel contracts with all counterparties. They will also find signs of illegal activity of the seller, if any.

Conclusions

Now you know how to buy a small business and what you will have to face when assessing all the risks and prospects. The very idea of ​​buying a company that is already operating is an excellent opportunity to save money at the stage of business development.

Don't forget to double-check all documents, conduct a full audit and study the company's features. It is advisable to contact specialists in different fields for this: economists, lawyers, marketers.