Buying an existing business or franchise has some advantages over opening a business from the ground up. You get to pursue your dreams as an entrepreneur without the challenges associated with starting from scratch. However, transferring ownership is often a long and tedious process, and overlooking some details can create issues down the road. Here are a few things to consider before buying an existing business.
Assess the business for significant issues
Before signing on the dotted line, do some research on the business to make sure you’re not getting more than you bargained for. Be sure and ask about ongoing litigations that involve the business or its employees. When you buy a business, you become legally responsible for settling any lawsuits. Work with an attorney or check local media outlets for negative press about the business.
Find out why the owner is selling in the first place. An owner may want to wipe their hands clean of a business with poor market prospects or low customer satisfaction. Other red flags to look for include operational problems, high production costs, or tough competitors. Read customer reviews, speak with suppliers, and check financial records to make sure the business has a positive outlook.
Generally, owners are selling because they want to retire, they want to pursue something else, or they could possibly just want to cash in on their investment. The point is, turn over every rock you can. When exploring a resale through a franchise model, the development team will be able to provide all of these crucial details as part of their Discovery Process with you.
Check for licenses and zoning regulations
One huge benefit of buying an existing business is that you get to skip all the paperwork involved with building from the ground-up. In an ideal situation, the seller will have acquired permits and licenses at the start of their business. However, some owners attempt to conduct business without the necessary licenses. Ask the seller to fulfill any outstanding requirements so you don’t incur fines from the government after sealing the deal.
Your business purchase might come with property. If that’s the case, check the zoning regulations to make sure the business is allowed to operate on that piece of land. Local governments have specific parameters outlining what a business can and cannot do on certain sites. Keep in mind that any changes you want to make must fall within the zoning requirements.
Obtain a list of assets and their value
When you buy an existing business, you need to know exactly what you’re getting in the deal. Ask the seller to provide a spec sheet outlining each asset and its monetary value. That way, you and the seller are on the same page about who retains legal ownership over which assets. Some assets to discuss include property, equipment, capital, trademarks, and anything else the seller has used to run their business.
Begin ownership with a ROBS funding plan
As you take on an existing business, consider transferring money from a qualified retirement plan into a Rollovers for Business Start-ups (ROBS) account. ROBS gives you immediate access to capital, and you won’t have to start your business venture in debt. The money already exists in your retirement account(s) from a previous employer, which means no loans or interest rates. Unlike borrowing money, a ROBS never has to be repaid.
Doing your due diligence will ensure you start your business journey on the right foot. As a leading third-party administrator, Tenet Financial Group can set up a ROBS funding plan quickly and securely for your new business venture, often in as little as four weeks. Contact us today to get started!