Table of contents:
- What is a ready-made business and why buy it
- What to find out before buying a ready-made business
- How to transfer a ready-made business to yourself
- What to do if buying a ready-made business is scary
2023 Author: Malcolm Clapton | [email protected]. Last modified: 2023-05-22 06:26
Go through the papers, talk to contractors, and don't make hasty decisions.
What is a ready-made business and why buy it
It is not necessary to start your business from scratch, you can buy an already working business. This implies streamlined processes, purchased equipment, an existing customer base, contracts with suppliers. And you just have to take over control and continue to develop the business.
Ideally, this will be the case. And in this case, you can immediately start working - all the preparatory stages have already been passed.
What to find out before buying a ready-made business
Reasons for selling
If you don't want to waste your money on a dummy, find out why the seller decides to stop doing business. According to Oleksandr Nedelyuk, an expert in selling a business and attracting investments, there are several unsuspecting, normal reasons.
Many people just get tired of what they are doing and decide to change direction. In addition, owners often find a more profitable area for themselves and sell the business in order to do something more interesting.
2. Resale business
There are a huge number of specialized specialists in various fields who buy an unprofitable business cheaply, solve the problems that have developed in it, and turn them into a stable plus in order to sell at a higher price.
As a rule, such a business becomes a very good buy, especially if the owner does not hide anything, tells everything, shows and additionally assumes obligations for your training and initial support.
3. Division between partners
Many start working in partnerships, but over time the owners disagree. And then the best way to share what you have acquired is to sell the business.
4. The need for money
Sometimes some circumstances happen in life and you have to urgently get money out of the business, even if it is profitable.
5. Unjustified expectations
Sometimes people expect easy income, but they are wrong.
Many people think of their business as 3 hours of work per month. Sit back and control. But when faced with reality, they realize that entrepreneurs don't have days off. There are always some problems, and sometimes people just decide to return to stable employment and after 18:00 forget about work.
It happens that people have already earned money for their old age and want to retire, remove the stress associated with entrepreneurship from life, and take up travel or grandchildren.
7. Credit load
The project is profitable, but it was bought with credit money, and most of the profit goes to paying off the debt. The owner is tired of working for the lender and decides to sell the business, pay off the loan and use the remaining funds to start a new business.
8. Non-core asset
Sometimes the business goes to entrepreneurs for debts or as part of the purchase of another project. It happens that the business model changes and some direction becomes uninteresting. For example, a company buys a production facility in order to make something for itself, but with it it gets a retail store. The business is up and running, but it turns out to be unnecessary. Often, sellers in such situations are not individuals, but legal entities.
9. Personal reasons
The most dangerous, according to Nedelyuk, but sometimes a real reason. Moving, pregnancy, selling a business, bought by his wife when she "played enough". These reasons are suspicious because they are usually used by salespeople, trying to hide the real problems in the business.
A bad reason for you to sell a business is always in one thing - in the absence of profit. All other problems are consequences. But this does not always mean that the offer is not interesting. If the weak side in this business is in your area of competence, you can bargain and profitably buy an excellent platform for further making money.
You can ask the owner himself about the reasons for the sale, but it is better to use all sources of information.
Dmitry Grits, practicing lawyer, director of the Institute of Business Law, Moscow State Law Academy
I advise you to talk to your competitors, they sometimes understand well how a particular company is doing. You can even ask if they are ready to buy this business and listen to their position and arguments. Chat with former or current, if they are talkative, employees of the firm.
According to Nikita Rozhentsov, senior consultant of the Legal Practice Department of Alliance Legal CG, the main issue when buying a ready-made business is to what extent the declared indicators (revenue, profit, return on capital, profitability) correspond to the real ones and whether they will be preserved in the future. The more complex and large the case, the more specialists and time are required for analysis.
For the objectivity of the assessment, it is advisable to introduce the buyer's representatives into the management of the ready-made business, who could prepare answers to financial and other questions related to the type of activity. For these tasks, there is a due diligence procedure - a legal and financial audit conducted by competent people.
If you decide to check the seller yourself, the founder of the law firm "Barancha and Partners" Vadim Barancha advises to look at the following data:
- Accounting statements for 3 years with the tax inspection marks of acceptance. So you will be able to trace the dynamics of the development of the company and profit indicators.
- Statements of all bank accounts for 3 years. Here you will find large transfers and ask the seller clarifying questions.
- List of debtors and creditors. Moreover, do not trust only securities, try to contact suppliers and contractors in order to get data from them. And check the individual entrepreneur or legal entity by.
Review all receipts, invoices, contracts, declarations. The numbers in them should converge.
In the contract, it is imperative to provide for a fine or the possibility of terminating the agreement in the event that the seller concealed important details that affect the stability and value of the business being sold.
Finding out the current financial indicators is half the battle, it is also important to find out whether they can be saved. Check the following points.
1. How stable is the income?
Look at the contracts under which the business is paid money. How many sources of income does he have - one large or many small ones.
If the client is alone, there is a big risk that he will abandon you, and then the business will cost nothing. Therefore, you need to look at the terms of the contract: can this large customer terminate cooperation and how quickly. And then sit down and count, considering negative scenarios.
If this is a B2C model, find out how products or services are returnable and whether it is possible to return money to consumers the moment you purchase a ready-made business. Consider the risks with the idea that after a purchase a significant portion of customers will for some reason refuse your services or goods, and see what happens to your business model.
2. How much the business is "tied" to the owner
According to Vadim Barancha, if business processes are based on the personal relationship of consumers with the owner, changes can lead to an outflow of the customer base.
3. What about trademark and intellectual property protection
If you do not want to buy an empty candy wrapper at the price of a candy, you need to find out who owns the company's developments and the trademark.
A situation may arise when a company sells its flagship product, but it does not legally belong to it. And at a certain moment, former or current employees come and say: pay compensation, or we will take all the developments, they are ours. And more often than not, it's true.
4. How are things going with the consumables?
All the numbers might look pretty good now. But what's in the future? Review all contractual business relationships.
For example, you buy a cafe, but there is no lease agreement. And the landlord says, "Pay three times as much." Well, why such a business? Or vice versa, you buy a share in an LLC, and it entered into a lease for 10 years in foreign currency without your right to terminate.
5. What are the moods of employees
It is possible that after the sale, key employees are going to leave the company, who perform a significant part of all tasks. This will be a serious blow to work and, accordingly, to profits.
6. What is the condition of the equipment
Perhaps it is, but it is worn out and will have to be updated in the near future. This is a good reason to talk about price cuts.
Legal risks and business cleanliness
Alexander Nedelyuk advises to take an extract from and look for an owner and a legal entity through counterparty verification services.
Find out how the relationship with employees, partners, suppliers, customers is structured. Whether the business model is legally operational. Are there all licenses and certificates. Are the violations of the law that the company makes critical (and they, according to Dmitry Grits, always exist). Check out the business software. If a company has problems, it can simply be taken away for debts.
The whiter the business, the safer it is to buy it. It is clear that nowadays the purest legal option is rarely found in Russia, but it is necessary to assess the risk each time in a specific case.
Business reputation and market conditions
If a company has been on the market for a long time and, judging by the securities, is working successfully, it has developed a certain reputation, which should be good. If customers, counterparties, and even competitors roll their eyes at the name that interests you, you need to work very hard to fix it. Or choose another ready-made business.
It is also important to evaluate trends in the industry as a whole.
Andrey Efremov entrepreneur
For a very long time I have been following the topic of selling a ready-made business. If a business is being actively sold in the sphere, there will be a crisis. For example, in Moscow before the demolition of "illegally built" there was a boom in the sale of this type of real estate.
Therefore, analyze the proposals as a whole so as not to stumble.
How to transfer a ready-made business to yourself
Much depends on how it was registered with the previous owner.
In this case, you are not buying a business as a company, but assets, and for this you need to register as an entrepreneur. According to Pavel Korneev, a leading lawyer of the European Legal Service, you will be handed over the rest of the goods, shop equipment, office furniture, office equipment under a sale and purchase agreement. You will have to renegotiate lease agreements, contracts and so on in your name.
2. LLC (less often JSC)
Two ways are possible here.
Sale of 100% of the authorized capital or a share in it
It makes a difference whether you buy the whole company or a share in it. In the second case, it is necessary to take into account many nuances, for example, find out what procedure for the owner's exit from the LLC is provided for by the documents, notify other members of the company about the transaction. But in the first case, there are subtleties that are best discussed with a lawyer.
Registration of a new LLC with the transfer of assets
Here is the same principle as when buying a business from an individual entrepreneur. It is much safer in terms of possible risks, since the debts and problems of the old company will not pass to you.
What to do if buying a ready-made business is scary
Take a closer look at franchises. You operate under the name of a well-known brand, which solves many reputational issues. You will be given instructions on what to do and will help you arrange supplies. But you will have to periodically pay the copyright holder a percentage of the proceeds or a fixed amount for this.