Buying a ready-made business: what you need to check

A ready-made business can be sold for various reasons and not always due to lack of profit. There are several important aspects to check and analyse before buying such a business.

Advantages of buying a ready-made business

Buying a ready-made business can have the following advantages:

1. the operational processes are already established, allowing you to start making profits sooner;
2. the product is already marketed and its production processes are defined;
3. the company’s brand, if it has been developed, is already known in the market;
4. accounting and management accounting platforms are set up;
5. staff is hired, payment systems are connected and paid for.

Despite the significant initial costs compared to setting up a new business, this approach allows you to start generating profits faster and increases the speed of return on investment

Before buying a ready-made business it is necessary to:

1. determine the spheres of activity. It is necessary to decide which type of business is preferable: catering, trade, production, services, etc..;
2. analyse the chosen market in detail. It is important to assess the prospects of the business and the level of competition;
   In addition to studying the accounting statements, it is necessary to carry out a comprehensive check of the rest of the leading documentation of the business, such a check can be carried out through due diligence procedures. Thus, careful analysis and strategic planning help to prepare for the purchase of a business and make an informed choice.
3. after studying the company, finalise the transaction. This stage takes place after analysing the market with legal assistance;
4. when going operational, request all necessary resources and data from the seller. Having contact with the seller at a later time can also be helpful.

Things to pay attention to

Statutory documents. It is necessary to carry out a check of constituent documents, corporate documents must be correct, despite the successful operation of the company.

Accounting and financial statements. It is recommended to analyse the reports of the organisation for several periods. It is better to verify the statements with the help of third-party experts.

The accounting process in place. One should also examine the current accounting system and its functioning. The statements are a complete reflection of the company’s financial performance – the statements for several recent and early periods of the organisation’s existence should also be audited.

Transaction participants. It is important to find out who the company’s counterparties are and what their reputation is. Check both creditors and debtors, as well as collaborators with the organisation.

Ownership of fixed assets. It is necessary to check the presence of arrests or encumbrances on assets.

Debts of the organisation. It is necessary to check whether there are debts to employees or budgets. Contractual obligations should also be analysed.

Contracts with employees. It may be worth raising the question of how employees feel about a change in management.

Contracts with counterparties. Agreements with key counterparties who play an important role in the business being acquired should be checked.

Assets of the organisation. Check the assets of the business that these assets belong to the business in question and not to third parties. The building, equipment and tools should be checked

Compliance with the law. For completeness of the check, you can analyse the extract from the Unified State Register of Legal Entities: name, amount of the charter capital, OGRN and TIN, legal address, full names of managers and participants. This information can be found on the website of the Federal Tax Service.

Organisation’s Charter. The charter is one of the founding documents of the organisation. It should reflect important data: name, organisational and legal form, structure of bodies and their powers. The organisation is obliged to submit the charter to the tax authorities, in order to make sure of the legality of the organisation’s activities – it is necessary to request the charter from the current founder.

Absence of liquidation status. It is necessary to check whether there is no data on the liquidation of the organisation in the extract of the Unified State Register of Legal Entities.