Start Your Research
Not sure what type of business you’d like to buy? Start your research by contacting a local business broker or exploring online business broker sites. Thoroughly investigate your options and prepare just as if you were starting up your own idea: create a plan, register the business, and consider location and financing.
Examine revenue and costs closely. For example, if you are purchasing a restaurant, look at food and beverage sales, labor costs, and food costs. Look at these numbers by month and by year and check averages. Also examine the cost of utilities, rent, insurance, and taxes. If the current owners owe a mortgage on the business, you need to include that cost in your business plan too.
If an owner is reluctant to show you their books, don’t proceed any further. If they are serious about selling, they should be ready to give a clear picture of the financial health of their business. Keep in mind you may need to sign a nondisclosure agreement (NDA), promising you will not share their information with any other parties. A Dun & Bradstreet credit report on the company can help you evaluate its track record and double-check its reported numbers.
Due diligence package
A due diligence package includes past tax returns, any significant contracts the company has signed (including office of store leases) and any employee or contractor agreements. It also includes legal documents, such as filings, articles of incorporation and any past or pending lawsuits the company is involved in.
Unless you are very familiar with the business for sale (you either worked there or frequented it regularly) you should find out if the location has been profitable for the existing business. Is it visible enough to bring in foot traffic? Is there enough parking to encourage business? If the space is rented, then you must speak with the landlord about rent and find out if the cost will increase.
Adopting the Name
Decide if you want to buy the business, along with the name and logo, or just the space and equipment. If you don’t plan to make any big changes, at least in the beginning, then it may be easiest to keep the current name. If the original owner plans to abandon the company’s fictitious business name with the Office of the County Clerk, they must obtain a Temporary Verification of Registration from the Office of the Treasurer & Tax Collector indicating the business closing date.
Paying taxes owed
If you’ve decided to buy the business, you must obtain either a receipt from the Office of the Treasurer and Tax Collector (TTX) showing that all of the seller’s taxes on the business have been paid, or a certificate stating that no amount is due. This is required even for voluntary transfers of ownership where no form of currency or payment is exchanged, meaning the owner is giving you the business rather than you paying for it.
If the business owes taxes, the buyer must include the amount in the purchase price and pay the money owed to TTX. Otherwise, the buyer becomes personally liable for the amount of taxes, interest, and penalties owed on the business.
Most industries have a standard method for valuing a business that uses a multiple of the previous year’s revenue. If the business has a lot of capital equipment (a manufacturer, for example), the market value of the equipment is taken into account as well. Fast-growing businesses in attractive markets are usually valued higher, as future potential is factored into the selling price.