The opportunity might present itself — you can buy a business. Why would you want to, though? It’s quite simple. Let’s say the company seeking acquisition actually is quite profitable, but the owner wants to move on somehow. It does happen. Oftentimes, though, certain expenses might not be covered by the profit margin, and that’s why a CEO seeks to sell — but that doesn’t mean the business wouldn’t work for a new owner.
The bottom line is this: you might succeed with a new business for several reasons. It can channel an additional source of revenue for your own bottom line as an entrepreneur. You have an opportunity to expand your horizons. You’re diversifying your own executive bio even. Whatever the case may be, if you’re interested in a particular industry by chance, and you don’t want to have to start any business from scratch, you might have an alternative here — you can buy someone’s business.
Acquisitions — Factoring in Costs
Do the research, and you may find businesses in the market for acquisitions. Know this, though — purchasing that already established enterprise might empty your pockets a lot, albeit with less risk than if you had to start a completely new business. Think of it as a turnkey operation — however, you’re shelling out some money to make it your own.
There are some additional unforeseen costs, though, you have to keep an eye on, even when there’s no federal tax necessary when buying a business. There might be some outstanding tax liabilities and potential tax audits for you to consider. Do this before you even make a decision to buy. Once you buy, you’re responsible for also paying up on those present tax responsibilities.
While it might be less expensive than going through all the paperwork and legal steps to launch a new business, one thing’s for sure as requirements go:
You Can Definitely Get Professional Advice
There are numerous other factors aside from tax liabilities, such as:
- Overstated Earnings
- Poor Employee Relations
- Overvalued Inventory
- Pending Lawsuits
That’s just a few of them. Having that experienced business lawyer on staff, though, can uncover all the secrets of a business just to make sure you’re making a profitable and positive investment.
Think of it as the same as buying a home. You want the inspection. You want to make sure there are no gas leaks, rodents and black mold. Sure, the house looks good from the outside (possibly due to staging, of course), but you never know what lurks around the unseen nooks and crannies of the house. Be thorough.
Moreover, that skilled business lawyer you’ve retained can even serve as your escrow agent. Such an attorney’s job is to be completely accurate with money. When you don’t need to think about it, you deal with less headaches.
A Business Acquisition, Though, Can Be About More Than Just the “Hard” Assets
In this case, though, you’d want to discuss the prospect with a business appraiser. You’re looking for the more “intrinsic value” of the company. Maybe you’re even considering that industry and want to take the company toward better results than what was previously recorded.
It’s that business appraiser that can take one good comprehensive look at the big picture of the business and see whether or not profit can be ultimately forecasted in the long run. Factors such as geography, demand and comparative analysis of the competition can be considered heavily.
Above All Else, Though, Take a Good Look at the Taxes You’re Going to Need to Pay
This largely depends on your geographics — where you live and what laws would apply to you. Again, consult with your business lawyer about what you might be looking at in terms of new taxes you’ll need to pay just for acquisitions. Forget even thinking about current tax liabilities. This is a whole different playing field.
One possibility could be the “transfer tax.” It’s pretty common with real estate law, actually. Figure whether the tax would be imposed on the seller or buyer. Consider the possibility of paying it on your own if the tax is applied to you. Additionally, you have to watch out for annual personal property taxes. All your equipment, fixtures and inventory can be taxed. Take note and crunch the numbers. You don’t want any surprises.
Overall, Though, You Might Be Sitting on a Goldmine
It takes a bit of guts — but it may turn out quite well. Consider business acquisitions. Owning a readymade business can definitely bolster a lot of your business revenue so long as you know how to manage that readymade business and propel it toward success.
Matt Faustman is the CEO at UpCounsel. You can follow his business insights on Twitter at @upcounsel.
