You've found a business that's right for you, put a value on it and decided on a purchase price. Now, make sure everything else checks out. Here are the first five things to consider before the deal goes through:
1. Is the location leased? If there are less than three years left on the lease, look into getting a new term or a guaranteed extension from the landlord. A good location means nothing if you have to move out in a year when the lease expires.
2. Will the employees stay? A key employee's departure could profoundly affect the business's future operations and earnings. Also, is there an employee who can run the company in your absence?
3. Who are the customers? Do any of the clients account for more than 10 percent of the business's gross sales? Does the company have a binding contract with these customers?
4. What about training? Is the owner willing to stay for a specified period of time to train you or at least be available for phone consultations? If not, is there a key employee who can train you?
5. Who's your competition? Check the surrounding area and industry records. If you're planning to buy a doughnut shop and another one is due to open down the street, the company may not be such a good investment.
Check out tomorrow's tip of the day for six more questions to answer before buying an existing business.