Launching a startup is hard. To look at the numbers, you may think it’s impossible – only 25% of companies are around after the fifteen-year mark, with 20% to 30% filing for bankruptcy after two to five years. Ouch.
In many ways, it’s less hassle to purchase a business that already exists because you know a lot more about the essential elements of success. The figures prove that the formula is a winning one. Of course, buying a company, if you can get over the initial investment, isn’t a walk in the park.
To make it work, you must focus on the following.
Secure The Rights To The Infrastructure
Sellers are smart. They’ll put their business up for sale and use the small print to milk the sale for everything it’s worth. For example, if you don’t purchase the infrastructure, they can use it to set up a separate and competing organization or encourage you to buy it as an add-on. Both scenarios are harmful, which is why you must include everything from the tangible assets (machinery; vehicles) to the intangible ones (patents; trademarks). To sell IP address that impacts your odds of success should be your decision. To ensure it is, it’s vital to have a lawyer you trust to go over the contract with a fine-tooth comb.
But Avoid The Debt
Buying the assets means that you want to avoid purchasing the business. As weird as it sounds considering that you plan to own the company, it’s important to make the distinction. Only investing in the assets, tangible or not, ensures you don’t own any shares in the organization. For LLCs and corporations, this is crucial since you’ll be liable for any debts once the sale is complete. Also, it’s better tax-wise as you can state the value you paid rather than what the former owner paid.
Factor In Receivable Accounts
Please don’t let this put you off buying a business, but a portion of customers and clients will owe money at the point of the sale. Although it’s potentially costly to the buyer, it’s a bargaining chip too once you factor unpaid invoices into the deal. After all, some of the people, as the former owner knows, won’t pay up. Therefore, you take the headache off their hands by offering to purchase accounts receivable at a discounted price. This way, your upfront investment is less, and you may have leverage if a business or individual in the red wants more of your services.
Speak To The Landlord
The ink is dry and you own a business with a steady flow of leads, sales, and income. Congrats! However, as lots of new owners realize, there may be a hiccup regarding the lease. In short, it could be up shortly, and the landlord may increase the rent to add to your expenses. It’s not the seller’s prerogative to perform your due diligence, so it’s wise to talk to the building owner before signing on the dotted line.
Then, you can negotiate a medium to long-term deal that cuts overheads and provides peace of mind.
