A ready-made business can be sold because there is no demand, but there are debts and losses. In this case, the owner will refer to employment in another industry, relocation, and demonstrate his company’s success.
You can’t believe everything the seller says. You need to check the business before buying carefully. Even after verification, the risks remain.
Here’s what to do before buying a company
- Look at the business through the eyes of the customer. Hire a mystery shopper or become one yourself.
- Read company reviews online. Not all reviews can be trusted, both good and bad.
- Check contracts. For example, how the relationship between the owner of the company and the landlords and the history of rental relations are formalized. Request information about the presence of arrears in rent and utility bills, and order an extract from the USRN to find out who the premises owner is. The comprehensive statement of the property will list all valid leases concluded for a year or more – but only on the condition that they are registered there.
It may be that the business owner rents the premises from a relative at a very low rent. He will sell the business to you; his relative will raise the rent, and profitability will fall. To reduce risks, look at the lease agreement and additional agreements. Please consult a lawyer: it isn’t easy to understand contracts without experience.
How to rent an office
Find out what the state thinks about this business. Examine the file of court cases. Go to the website of the bailiff service and see if there is information about the legal entity or individual entrepreneur. If not, this does not mean everything is in order: perhaps the data has not been added yet. Examine the information about the company on the website of the tax service. Use services to check counterparties.
Study the documents regulating labor relations. For example, does the staff receive a white, gray, or black salary? Are employment contracts concluded, and for how long? What is the qualification of the team? What is in the job description?
You can even work for a while at the company you’re considering buying. So you will understand from the inside what the problems are in business.
What is due diligence, and how can it help
Due diligence is a procedure during which specially trained people check the finished business in all respects. Such a check helps to understand complex financial and legal issues, and what problems the company and investments will bring.
Here are the checks that experts conduct during due diligence:
- Operational – history of development, evaluation of the effectiveness of the organizational structure, the company’s personnel.
- Legal – the legality of the company’s constituent documents, property rights, and encumbrances.
- Tax — tax debts, risks of inspections, the legality of optimization schemes.
- Financial – business indicators related to income and expenses.
- Marketing – the company’s competitive advantages, prospects, market position, etc.
- A separate report with an assessment is developed for each block; then, a general one is formed.
There are legal and audit companies that deal specifically with due diligence. For example, when there are reports of large companies being bought, merged, or invested, due diligence is almost always carried out. Sometimes this is a mandatory procedure for banking operations: loans or leasing.