Tag Archives: buying a business in MN

Tips for Buying a Business During Uncertain Times

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Maybe you’ve thought about buying a business but in light of world events and the current economic crisis, you’re thinking about putting that dream on hold. We’re here to tell you that, equipped with the right resources, this may be an excellent time to make that purchase.

Investigate recession-proof businesses

Unfortunately, many businesses are hurting right now. In light of the quarantine and shelter-in-place orders, business owners are laying off workers and closing their doors. Many are afraid they may not be able to outlast the current crisis and that their businesses will fold. For every tragic story of struggling businesses, there is a story of hope – businesses that are thinking outside-the-box and businesses that are flourishing, despite the economic downturn. When it comes to purchasing a business, recession-proof businesses are excellent choices. They span many industries including food, home maintenance, auto maintenance, legal services and eldercare.

Do your research

Set yourself up for success by doing thorough research into the industry, market comps and the company’s books before entering into negotiations with a potential seller. Consider hiring professionals – a broker, an accountant and an attorney – to make sure no stone is left unturned. This may be the single biggest purchase of your life so investing in the research process is highly advisable.

Focus on tangible assets

Intangible assets include but are not limited to brand names, trademarks and customer base. Especially in a recession, the value of these assets may be largely irrelevant. The value of tangible assets, however, is easier to nail down, allowing the buyer to hone in on the actual value of the business regardless of the current economic situation. Ask the seller to itemize both the tangible and intangible assets to the best of their ability so you know precisely what you’re looking at. In a recession, make sure you’re paying the going rate for tangibles and substantially less for intangibles. This will prepare you to write a solid offer.

Operate with cash

During good times and uncertain times, one thing stays the same – cash is always advantageous. During rocky financial times, lenders may raise interest rates to mitigate their risk. The less you have to rely on financing, the better off you are and the stronger your offer appears.

Want to learn more? Check out our tips for savvy buyers!

If you’re in a good position to make a business purchase, don’t shy away in light of current events. This may be your moment. Contact us at 612.331.8392 or by email at info@oibmn.com.

How To Be An Informed Buyer

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HOW TO BE AN INFORMED BUYER

As a potential business buyer, you owe it yourself to be informed. Uninformed or unrealistic buyers not only make poor choices, they also frustrate the parties they work with, such as attorneys, accountants, and brokers. Additionally, while it’s essential to retain such professionals for advice and services, the ultimate responsibility rests on you for every action and decision, so take the time to be thorough.

Ask These Important Questions

As you entertain the possibility of buying a business, here are a few questions to ask and factors to consider.

Are the sellers or the business itself the subject of insolvency proceedings of any kind, such as a bankruptcy filing?

Are there any active contingent liabilities, such as pending or actual disputes with employees, customers, or other parties?

Has the seller made any commitments to employees to increase their compensation? How about to service providers, independent contractors or suppliers?

What’s the relationship with the landlord like? Make sure you know about any active or potential disputes with the landlord, and the history and resolution of any past such disputes.

Seek Detailed, Conclusive Information

You’ve got a right to accurate, timely information from the seller about whether the business is in default on financial, non-financial, taxation, contractual, warranty, or other obligations. Other factors to verify include whether there are pending or unpaid claims for rent, supplies, back wages, or anything else.

In terms of the property itself, ask for a full report on easements, zoning and surrounding property uses. Verify who provides utilities and whether the service has been adequate. Are there natural, geological, or environmental hazards affecting the real property or the business?

Make sure you’re fully informed about any potential environmental hazards relating to substances or products involved in the business. Hazards may include such issues as contaminated soil or water, paint, solvents, fuel, formaldehyde, asbestos, radon gas, medical waste, and surface or underground storage tanks,

Get a clear, itemized assessment of the remaining useful life of the business’s equipment, vehicles, fixtures, intangible assets, etc.

Immerse yourself in learning about the industry, especially if it’s new to you. Without a broad understanding of the arena, it’s hard to research and understand the overall market for the company’s products or services, or the nature of the competition.

The Risk and Responsibility are Ultimately Yours

Ultimately, you need to ask these questions and more, and then evaluate the responses critically. If any answer seems off, don’t just take someone’s word–dig in more deeply and verify the accuracy of the answers you get. When you take over a business, you potentially accept significant liability for things that may have happened prior to your involvement, so your due diligence is vital, and no one will take it as seriously as you do.