Before buying a business, it’s crucial that you know what you’re getting into. Your newly acquired venture can either be a fantastic opportunity to grow, or a disaster waiting to happen. Conducting due diligence ensures you have critical information about the business you’re planning to buy. Furthermore, professional brokers from companies like Del Lingco International in Houston, can be vital resources when it comes to taking certain things into consideration before you buy.
Before signing a binding contract, it’s important to investigate all aspects of the business for sale. There are critical factors you can’t afford to ignore such as the company’s financial performance, operations, intellectual property, customer contracts, legal and tax compliance, assets and other details. Only you can determine whether the business is right for you; however, leveraging a business broker, and asking yourself a few questions can help you make the best decision.
Why is the business for sale?
Business owners will sell their business for plenty of reasons, and as a buyer, understanding the reason(s) a business owner is selling can be very useful information. Be sure to discuss the reasons for sale with the owner, in addition to doing some confirming research of your own. Ambiguity, conflicting reasons, or a failure to disclose reasons for selling should be considered red flags for buying a business.
What is the customer concentration like?
When evaluating your options, take time to understand the business’s primary source of revenue, especially regarding the concentration of customers. For instance, if the firm relies on a few customers for a significant portion of its revenue, you will want to know whether they will still be on board after the sale. Also, learning what the options are to make the business more marketable is equally important.
What are the sales and payroll taxes like?
Review the business’s taxes for the past three to five years. This will help you determine not only the outstanding tax liability, but also the profitability of the business. You will want to get a clearance letter from the state tax authority saying that the seller is current on their tax payments. It also helps to talk to the firm’s employees to find to whether the company uses a payroll service and that they’re current on tax payments.
Buying a business is likely one of the most important transactions you’ll ever make. Make sure you’re doing it for the right reasons, be patient, don’t shy away from negotiations, and be prepared to be directly involved in the business you’re buying. For more assistance and information on buying a business, speak to the Houston experts of Del Lingco International; call 713-783-5800.