The 5 Essential Checks to Perform Before You Buy a Business

by Vanessa Lovie 8th of August, 2022

The 5 Essential Checks to Perform Before You Buy a Business

If you’re in the market to buy a business, you have come to the right place. On Bsale we have 10,000+ opportunities and new listings added daily. When you look to buy a business there are a few essential checks you should perform.

1. Lease Agreement

The lease agreement can have a significant impact on the success of an organization, especially if in the retail or hospitality sectors. If you want to buy a business that relies heavily on foot traffic or a good location, the lease agreement needs to be reviewed in detail.

There are a few things you will want to check:

Is the lease transferable?
Are there any trade constraints?
How much time is left on the lease?
What are the terms of the lease?
Are there any scheduled rent increases?
Are there any expected shop fit-outs?
Does the owner intend to sell the commercial property?
Are sales or profit tied to the lease payments?
Can you change the business name?

2. Local Developments

When you buy a business you want to ensure the opportunity will continue to be profitable. It is a good idea to check with the local council to see if any developments are planned that may impact your business. Especially if you are buying in a regional town, you will want to check if any major road changes or shopping centres are planned. These could have a dramatic effect on your sales and income.

It's a good idea to speak with some local business owners about the area and if there are any talks of things changing. One of the most important things, when you buy a business, is ensuring the business will continue to operate at the same level (if not better). You are basing your decision to buy a business around its profitability, so you want to ensure it can continue.

3. Non-Compete Clauses

Obtaining professional advice from a solicitor is important when you buy a business. One of the important clauses in a sale agreement is a non-compete clause. This can prevent the current owner from opening up a similar business in the local area for a set period of time.

This is very important in service industries such as hair salons for sale or lawn mowing businesses for sale. If the current owner was to start a new business, they could take the existing client base with them, which would affect you and potentially decrease your profitability.

Essential Checks Buy a Business
Check the Contracts and Agreements When you Buy a Business

4. Contracts and Agreements

What has the current owner signed onto? You need to have a solid understanding of any agreements that the company has agreed to, such as ordering custom coffee cups or a new vehicle that's due to be delivered. You need to know all the contracts that are in place, so you can factor these expenses into your budget.

A company may have agreed to order a certain amount of products every month, but they are struggling to sell. You want to buy a business that is profitable, not one that has a lot of debt and agreements in place that you may struggle to pay.

5. Structure

What exactly are you buying? Are you buying a company, a business name, a distribution right, a franchise? There are so many elements, you need to have solid professional advice so you understand what exactly you are buying and committing to.

When you buy a business you may be relying on team members, products, equipment, trademarks, clients, suppliers, distributors and so on for its operation. Reviewing all these elements is important when you buy a business as you want it to continue to operate smoothly after the transition. It is during the due diligence process you can review all of these elements and make decisions if this is the right opportunity for you.

Do Your Checks When you Buy a Business

When you buy a business you are entering into legally binding contracts and taking on all the assets and liabilities of the organization. It's extremely important you have professional advice from a solicitor, accountant or business broker to help you during the process.

You can buy a business from $15,000 to multi-million dollar companies, so the process will be different. What is important is you conduct proper due diligence so you know exactly what you are committing to and that the business meets your expectations. Don’t go in blindly and listen to everything the seller tells you, make sure you do your research and are purchasing business opportunities that are right for you.

Tags: buying acquisition small business entrepreneurs coaching