A friend of mine, who has started several businesses, told me: "For my next venture, I want to buy a company. A start-up is just too much work."
He's got a point. Let's face it, the odds of failure for a start-up are significant. Besides, when purchasing a company, you can minimize certain risks, such as the product/service, customer adoption and so on.
And, with the soft economy, you might even get a good valuation (there's a good piece on this in the New York Times).
However, before embarking on a purchase, it's a good idea to consider the following:
Don't get into a deal frenzy: Over the years, I've seen a variety of buyers who were overeager to buy a business. The upshot: buying the wrong business for the wrong price.
So, make sure you take your time. After all, when it comes to purchasing a small business, there are usually few – if any – alternative bidders.
The Broker: A broker helps find businesses for sale. However, keep in mind that he or she represents the interests of the seller.
As a result, it's a good idea to find an experienced advisor, such as an attorney or CPA.
Listing Sites: There are a myriad of sites that provide listings of businesses for sale. Interestingly enough, many are from brokers.
But, there are some third-party sites, such as BizBuySell (which is the largest in the industry).
Trust but verify: For example, suppose you are investigating a company's books and you notice that contracts are missing. Perhaps the accounting is sloppy? Is the IRS being paid on time?
In other words, you need to conduct background checks, such as with credit agencies, vendors, customers and the local courthouse.
You may even learn that the owners don't own much. To this end, you can check for so-called UCC-1 liens (from the county clerk's office).
Liability Protection: OK, suppose you miss some problems, like a lawsuit? Well, there are ways to help reduce the risk when buying a company. One approach is to use an asset purchase. There may also be contractual protections you can include in the purchase agreement.
Yes, such things can be complicated – and again, having smart legal counsel is critical. Of course, there are some helpful books on the topic as well, such as The Complete Guide to Buying a Business.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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Reader Comments (Page 1 of 1)
6-02-2008 @ 2:10PM
William Park said...
I agree that people should have good legal advise from attorneys, and solid information from accountants. However, people should keep in mind to ask the right questions. It is risky business for any attorney and/or accountant to say "yes" buy that business. There is an inherent liability to giving a green light. A strong relationship with an experience business broker can open your eyes to industries and sectors you may not have thought about. Try using VR Business Brokers which is the largest, and has the longest history of helping buyers of businesses. In California, www.BizBizBiz.com is a website operated by one of the VR Business Brokers franchise. There you can find hundreds of businesses for sale. Good luck!
Buying a business is hard work, but very rewarding when you get into the right one for you.
6-02-2008 @ 5:25PM
Bob Jessen said...
Who would buy a business without seeing the tax returns of the seller at least as they pertain to the business you're considering. Bob J
6-02-2008 @ 6:24PM
William P said...
Bob,
Nobody is saying buy a business without looking at tax returns or financials. My comment includes financial review by your account, but the point was that the final decision is yours. The article talks about getting the advise of attorneys and accountants. I just wanted to say that they may never give you a final "yes buy it". Use them appropriately by asking them specific questions such as "What is the EBITDA?", but you need to decide what and when to buy.