Whether you’re a Doctor, Dentist, Chiropractor, Lawyer, Healthcare Professional, E-commerce owner, Amazon DSP, or any other type of business owner, we want to share with you three key factors for success when buying a business are:
1. Character: Your background in the industry and experience are very important to the success of buying a business. If you don't have industry experience in buying the type of business you're contemplating, then a strong suggestion is to actually work in that industry a little bit first. You may even consider managing the business you want to buy for a period of time first before pulling the trigger on that acquisition. Another consideration of character is your credit. If you don't have good credit and are looking to finance an acquisition, you may want to start working on that beforehand. Banks and even private equity lenders will always pull the credit of a purchaser when considering lending on a new acquisition.
2. Equity: In general, you will need around 20% of the purchase price at a minimum. Buying a business vs. buying real estate is a much riskier proposition to lenders and they will want you to have some "skin in the game". Sometimes a seller is willing to finance a portion of the sale, but rarely will anyone sell to you without having received some form of upfront payment. This shows you have a substantial commitment to the success of the acquisition.
3. The business plan: A good carpenter will measure twice, cut once. A business buyer needs to plan out the acquisition and also have a business plan for the future of that business, post-acquisition. Now plans may change post acquisition, but in general having a plan will show investors or lenders that you are taking this seriously. Additionally, it forces you to do a financial analysis of the business to measure if the initial investment is going to provide a rate of return that you are happy with.
1. Planning for the sale: Generally speaking, you are going to want to start planning for the sale of your business two years before you actually start to market the company for sale. The reason for this is you want to have your "house" in order. That means financial statements and tax records are accurate and up to date. Operational procedures of the company need to be fairly well documented before the sale also. Lastly, you will want to try and address any key employees without any form of employment agreements, as these employees may be the key to the success of a purchaser.
2. Marketing the business: Sometimes people feel it's ok to just sell the business on their own without any help, but generally speaking, engaging a broker to assist with this transaction is worth the price. A broker understands where to market the business and may even have contacts that are already interested in buying a business like yours. They may also advise you to engage the services of someone to perform a valuation of the business, so you understand how much it's really worth.
3. Structuring the deal: There are several ways to structure the sale of a business, and all come with different tax consequences. Do you just want an all-cash buyer? Are you willing to offer financing if your company is harder to sell? Do you sell the stock or just the assets of the company? Will you retain a minority interest post-closing? All of these questions should be addressed with your advisors, whether they be an attorney, accountant, family or board or directors if you have one.
If you or someone you know is contemplating buying or selling a business and want an accounting firm on your team that's traveled this road, you need a CPA firm that truly understands what you’re working with, and that firm is Interactive Accountants. So give us a call or schedule a free consultation with our owner Matthew Shiebler, CPA. He’s been practicing accounting for over 25 years now and is a business owner, just like you!