Factors you should consider before Purchasing a Business in Grapevine, TX
Many people believe that buying an existing business that has an established customer base, competent employees, and a steady flow of income is a more viable option then starting a business from scratch. To a certain extent this is very true, but there are many different factors that come into play that might affect the success of such a project. Even though many people have started purchasing existing businesses, there is still a majority of people who believe that no one with a sound mind would sell a lucrative business, however this is the furthest thing from the truth. Do not let this popular misconception deter you if you are planning on purchasing a business in Grapevine, TX.
There are a variety of reasons why an individual would decide to sell their business, each owner has their own unique perspective of the situation which has induced them into making such a decision. Of course selling your business is no easy task, especially after all the hard work and money that put into the business. Still, selling a business is considered to be an extremely viable option for many, some of the most profound reasons why an individual would decide to sell their existing business are mentioned below.
- New lucrative options
- Cannot keep up with pressure at work
- Diversifying into a totally different field
- Retirement
- Can help generate a substantial amount of revenue
- Seeking different opportunities in life
This list is just a glimpse of reasons why an individual would decide to sell their business, but it exonerates the fact that people sell their businesses due to other reasons besides the profitability of the business. This is exactly why there has been a recent surge in the amount of existing businesses being sold; however, buying an existing business can be risky. Firstly, the real motive of the seller will never be declared and will always remain unclear and determining the future profitability of a business can be difficult. Rest assured, we have articulated a list of factors you should ask before you purchase a business; these factors have been designed to negate or minimize the risk involved in such a project. These factors are as follows.
Should I buy the business or its assets?
The very first question you should ask yourself before embarking on such a project, is determining whether you should buy the business as a whole or just purchase the business assets. By purchasing the assets, you can easily start your own company and use the existing resources to expedite your businesses growth. However, buying the business as a whole will provide you with an existing customer base and you can use the good will of the company as well. We would recommend that you make this choice with impeccable attention to detail, as this could be the deciding factor in the profitability of the business. If you purchase the businesses assets then you will receive a better tax treatment and the existing businesses liabilities will not transfer to you. While buying the business outright might ensure immediate sales and profitability. This factor is arguably the most important factor you should consider before you embark on purchasing a business in Grapevine, TX.
Request an extensive tax report
The second factor you should consider is the current state of tax affairs of the business; even if you only purchase the businesses assets in some states, the tax authority may hold you liable for businesses debts. Although the laws that govern the taxing of such transactions is quite wide and varies from state to state, it is still very important that any disparities are cleared beforehand. The tax report should encompass sales tax and employee payroll tax as well; this is due to the fact that IRS might hold you accountable for any employment taxes. There is no doubt that requesting for an extensive tax report will take some time, but in the long run it can save you from substantial costs. This is considered to be a prerequisite for any individual who is planning on purchasing a business in Grapevine, TX.
Determine who will receive the businesses debts
Since the business has been operating for a while, it is safe to say that it might have accumulated numerous debts on the way. This means that many clients might have received services or products on a credit basis, so you should ascertain whether these funds will be transferred to the seller or to you. This causes many problems for businesses that have staggering debts that will be cleared after the sale of the business has taken place, so in order to avoid any unnecessary litigation proceedings we would recommend clearing any ambiguity around such debts. In most cases, the debts will be transferred to the new business owner, but the seller has every right to demand that these payments are transferred to him or her. If you are planning on purchasing a business in Grapevine, TX then please make sure that you determine who will receive the businesses debts.
Request for the businesses leases and licenses
This is a prevailing issue that people face after they purchase a business. Every lease and license has a predetermined time line, this means that after a certain period of time the lease or license will no longer be valid. These formalities are not renewed for free and can seriously hamper the operation of the business if they are not renewed at the right time. Therefore, we would recommend that you request the seller provides you with all the required leases and licenses make sure there is at least 6-12 months left. If there are only a few months left, request that the seller renews all of these formalities on their own. Making sure that the leases and licenses are all valid for a reasonable period of time will ensure that purchasing a business in Grapevine, TX will be a smooth process for you.
Request for an indemnity
The last and arguably the most important factor that you should consider before purchasing a business in Grapevine, TX is requesting that the seller provides you with an indemnity for any litigations proceeds against the seller. By obtaining an indemnity, you will safeguard your interests as people will not be able to sue you on the basis of what the seller might have done. Imagine if you buy the business and a few months down the line someone files a law suit against your company due to the prior activities of the seller, this is exactly why it is imperative that you request an indemnity.
Contact Kirksey Business Brokers for more information.