Thinking of buying a business? Read this first ....

At some point, almost everyone dreams of having their own business. We want to be our own boss, run the show and do work that we truly love.

Sometimes it can be easier to buy an established business with a proven track record than to start one from scratch. But chartered accountant Denham Patterson, a CA and business advisor in Woodbridge, Ont. says there’s a lot to think about before you quit your job to start living the dream.
Here are seven suggestions that Denham says would-be business buyers should carefully consider before signing off on that offer-to-purchase.

1. Do your homework. Make sure there’s a market for your product or service – one that hasn’t been saturated. A motel in a small town with no tourism isn’t likely to survive very long. Nor is a manufacturer of products with a finite lifespan, like a company making souvenirs for the 2010 Olympics.

2. Shore up your savings. Changes in ownership can mean changes in revenue. Will you have enough to live on while you get the business on track? Consider too that your financial circumstances may change for quite some time. Will you be able to maintain your lifestyle or scale it back if necessary?

3. Do what you know. There’s no substitute for experience. On occasion, you might have to overhaul that transmission or prepare that crème brulé yourself. Stay clear of businesses you know nothing about.

4. Include a price adjustment clause and a full disclosure agreement in the deal. Past performance and historical balance sheets won’t reveal if your biggest customer is about to pull his business or if a key supplier is going under. Nor will they warn you about new regulations that are pending or legislation that can destroy your business.

Add a proviso to the buy-and-sell agreement that will give you compensation if things don’t work out due to circumstances beyond your control. A full disclosure agreement will guarantee that you get complete information about the true state of the business, the condition of any equipment and whether it’s adequate to meet your needs and those of your customers.

5. Make sure your family supports the plan. Talk things through with your spouse and children. Everyone needs to understand that income and family time may change, at least for a while.

6. Consult the professionals. “People tend to react emotionally,” Denham says, “And think they can do it all themselves. It’s important to talk with experts – REALTORs, lawyers, chartered accountants and business valuators – who will give you the straight goods on the business you’re considering, and your suitability for it.”

7. Get lots of advice, then make the final decision yourself. Listen carefully to what all the experts have to say. Then, trust yourself to decide. When all is said and done, you’re the one who will take the risk, do the work and live with the consequences.

Written by the Institute of Chartered Accountants of Ontario.