Are you thinking about buying a business?
Owning a business is a great way to add a stream of income to your portfolio. When you own a business, you also experience the benefits of being an entrepreneur, such as setting your schedule, determining your pay, and getting paid for doing what you love.
However, starting a business from the ground up can be an overwhelming venture.
For this reason, many entrepreneurs become business owners by buying a business that already exists. Although this can be a great idea, there are a few things you need to know to make the process smooth and profitable.
If you are thinking about buying a business, this short and simple guide is for you.
Identify Your Goals
The first step for how to buy a business that exists is to identify your goals. Think of the time, effort, and money you have to put into your new venture. Think of what you want to accomplish and carefully consider if these goals align with buying a business.
Understand the Industry
Before buying a business from an owner, you need to understand the industry. Understand the type of customers you need, any specifics of the industry, and even how to sell a business in the industry. This is will give you a deeper understanding of if a business is right for you.
Verify Sales and Payroll Tax Status
Before you buy a business, it’s important to verify sales and payroll taxes status. If the current owner is behind on their taxes, by buying the business, you will inherit their tax status. You can supercharge your efforts by considering any prepaid expenses the business is contracted for.
Ask for Indemnity
When buying a privately owned business, consider asking for indemnity. This means if you are sued for anything the previous owner did or did not do, the previous owner is responsible for the judgment and all related court fees instead of you.
Require a Non-Compete Agreement
Before buying a small business, consider requiring a non-compete agreement. This protects you against the business owner using their knowledge to start a competing business in the same area as your business. Make sure to include a “no solicit” and “no recruitment” agreement so the owner cannot solicit customers or recruit employees.
Buy the Assets Instead of the Business
An important tip to follow when taking ownership of a business is to buy the assets of the business instead of the business as a whole. This not only protects you from the owner’s debts but will also result in tax breaks for your new assets.
This Is What You Need To Know When Buying a Business From an Owner
There are a few things you need to know before buying a business that already exists.
Start by identifying your goals to ensure the business you buy is right for you. You should also understand the industry and verify sales and payroll tax. Make sure to ask for indemnity, require a non-compete, and buy the assets instead of the business.
Follow these tips to successfully buy a business from the sole owner.
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