Your Money: What to consider when buying a business in Summit County
I’m not sure whether it’s a sign of the recession ending, or more baby boomers starting to retire, but I have seen a noticeable resurgence of business sales and purchases in recent months. If you find yourself contemplating the purchase, or sale, of a business, or you have a family member looking for advice, I have some thoughts you may want to consider.
As a starting point, it is important to understand that almost all businesses have a value. My own father recently planned to shut down his small tax practice. When I asked him to consider selling it, he didn’t believe it was worth anything. After working with a business broker, he walked away with one year of revenues, and a great feeling that his customers were in good hands. If you are a business owner close to retirement, why not retain that last bit of value and retire on top?
Buying a business may be the largest purchase you ever make, and selling may be the biggest gain you ever receive. Regardless of what side you are on, it’s important that you think through all the risks. When you buy a house, bankers review all sorts of numbers to ensure that you can pay back the loan, and even then, foreclosures still happen. I have seen more than a few businesses sold to a seemingly trustworthy buyer who simply walked away with the client list and never paid back the seller. I have also seen purchases made where the seller was misrepresenting their product, with assurances such as “I haven’t marketed in years, surely if you work hard, sales will increase right away.” Once the deal has closed, the buyer discovers that the business has limited growth potential.
Regardless of whether you are buying or selling, I always recommend using a business broker. While I often get questions on the topic as a CPA, it’s the business brokers who are best skilled in valuing businesses, and they know how to work a deal from start to finish. They are generally paid on commission when the deal closes, so there is little risk in hiring one, and the payback can be significant because their years of experience will help you avoid common mistakes, and maximize the value.
Often overlooked, there is no doubt that buying or selling a company is emotional on all sides, and it’s important to consider both the financial and the less tangible aspects. I have seen many business deals that look great on paper, but you have to think ahead to the time commitment. If you have kids, is the new company going to interfere with your quality time, or will you be gaining more flexibility? If you are looking to purchase a business as a transition from your career into retirement, is it going to tie you down and limit your ability to travel? There is no right or wrong answer, but to only look at a deal fiscally and not consider the lifestyle changes you need to make can lead to frustrations later.
While I hope every deal goes through with success, perhaps the most important advice is to be aware and objective throughout the process and never be afraid to walk away.
Michele Knight, owner of Knight Accounting & Technology, is a CPA and QuickBooks ProAdvisor based in Dillon. For more info and to contact her, visit http://www.cpamichele.com.
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