“Look before you leap!”
So, you’ve been in the computer repair industry for a number of years. You think you know how to handle customers and run a business. But you’re not a business owner yet. And now you are thinking that having your own computer repair business may not be such a bad idea. If you go about this right, there are many good reasons why buying an existing business can be the right move for you.
On the other hand, buying an established business means you’ll inherit everything that comes with it – the good and the bad. And yet you may have strong feelings of wanting your own business and being your own boss. It’s important to set your feelings aside and put on your business cap at this stage, and take an objective look at everything.
Yes, you need to be aware of every aspect of the business you are about to buy. And you need due diligence in considering the positive and the negative sides of buying an existing business.
Check the Pros and Cons
In reality, computer businesses don’t exist in a perfect world. As much as you would want to believe that there is a golden opportunity for you, still it pays to have a balanced view. There are a few advantages in an existing business that will put you in a good start. And there’s also the other side of the coin – the disadvantages. Looking into both sides will provide a good basis for your decision to either buy an existing business or not.
The Pros. The biggest advantage of buying an existing business is that some of the groundwork to run it are already there. And these are the essentials – the business name, a good reputation, a customer base, an existing location with its fixtures and equipment, and possibly employees. Its financial track record may make it easier to obtain financing later on. And many of the problems will have been discovered and already worked out.
The Cons. The main disadvantage of buying an established business is that you’ll have to invest a large amount up front. You may also need to set aside cash for professional fees, and as working capital to assist with cashflow for several months. You may need to honor or renegotiate all outstanding contracts you inherit from the previous owner – including utilities. It’s important too, to know the reason why the owner is selling – if the business has been neglected you may need to invest more on top of the purchase price. And there’s also uncertainty on how current employees will accept you as the new boss.
Of course, there’s no such thing as a perfect business. You will need to take into account the good and the bad, and strike a balance in between. If the pros outweigh the cons in your case, it could be a great opportunity for you. But if the negatives are weightier in the balance scale, then perhaps it’s better for you to start your own computer repair business.
Dig Out the Paperwork
Now there are times that the current business owner may feed you with a positive review of the business being stable and gaining in terms of revenue. Let’s face it, no owner would ever say that the business you are planning to buy is possibly in dire straits. But as the saying goes, the numbers don’t lie. So one practical step you can take is to have a look at the financial figures of a business you’re planning to buy.
Financial statements. It’s ideal for you to examine the financial statements from the business for at least the past three to five years. Pay special attention to details. While figures in a yearly summary are impressive, what does it look like if you break it down to an average of monthly or weekly? Also, don’t just accept a financial review from the business itself. It’s best to have an audit letter from a reputable CPA firm certify the accuracy of the review.
Tax returns. Review the tax returns of the business for the past three to five years. You will be able to see the profitability of the business from this, and be aware of any tax liability. Make sure that the seller has no outstanding obligations to tax authorities.
Important documents. Several documents should also be checked before you make your decision. Examples are – property documents, customer list, sales records, marketing materials, employee information, and contracts. Having these documents in order is very important. It will help you determine if the business is healthy enough to keep on running for months, or even years to come.
Work Out a Plan
There is no error-proof plan when you act hastily. But if you take your time to write down the expectations from both parties, you will have the foundations of a sales agreement. It could be an initial draft of what the obligations are, both from the seller and the buyer.
Seller’s obligations. Here are some guide questions about this. What participation will the seller have during transition of ownership? Is the seller expected to be on board for a specific period? Does the seller agree to sign a non-compete agreement, and for how many years? Does the seller agree to hand over all business accounts, branding, marketing materials, business contacts – phone, email, website, domain names and customer contacts as well, to the buyer?
Buyer’s obligations. This is where you write down what is expected from you. How much do you need to pay to acquire the business? Do you have a proposed payment scheme or payment schedule? Is there a service level that you need to retain to keep up with the company’s reputation? When the transition period expires, what compensation will the seller receive if additional services will be rendered?
Sales Agreement. This is the key document to finalize the purchase of the business. In this, you define everything that you intend to purchase. This includes business assets, customer lists, intellectual property and goodwill. If you decide to draft this document on your own, or together with the buyer, consider at least to have a lawyer review it before you fix your signature.
It’s true that buying an established computer repair business can be an exciting time. But once the deal is done, there is no turning back for you. So it’s important to weigh things in proper perspective. By performing due diligence before closing the sale, you make sure that this is a great opportunity for you, and every penny is all worth it.
Source: What You Should Know Before Buying an Existing Computer Business – Technibble.com