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Purchasing a business offers the advantage of not having to build a company from the ground. A business acquisition gives the new owner the capacity to operate from day one and have more probability of immediately receiving profit. Before buying a business, be aware of these 10 red flags that may affect your acquisition.

1. The reason behind the business sale

One of the main questions you should ask the current business owner is why is the business on sale. If the seller does not want to disclose this information, this certainly is a red flag. But if, on the contrary, the owner is willing to give you his answer, you should examine his response. If the answer is related to the owner wanting to retire or focusing on a business venture, then the business may be a good fit for you. When that's the true reason for selling, the business owner can provide the customer base as part of the sale and you wouldn't have to worry about competing against him. On the other hand, if the owner's reason to sell the business is related to financial problems or the incapacity of sustaining the business, then you should reconsider the offer. Whatever the response may be, you can still gather more information by asking more relevant questions about the business purchase or during the due diligence process and decide the accuracy of their answer.

2. Financial inconsistencies

The financials of the business are one of the ...

How to buy a restaurant

Buying a restaurant comes with several advantages. By purchasing an existing food business you will have access to its equipment, existing brand recognition, and built-in customer base, which may translate into an immediate profit. However, purchasing a restaurant also comes with risks that may be imperceptible at first sight. Follow our guide to buy a restaurant knowing that your investment is safe.

1. Find a restaurant

Have you already seen a restaurant that interests you, or are you looking for one? If you chose the second option, there are several ways of finding the restaurant that is the best fit for you.

Where to find a restaurant for sale

Analyze your options

From the start, you need to have a clear idea of your budget and the kind of restaurant you want. Before getting involved in the negotiation, you could begin disqualifying target restaurants on your own. It is a good idea to personally visit the restaurants you are interested in and act as a regular customer so you can see the strengths and weaknesses of the business. If you are not able to go to the business by yourself, you can always use social media, Yelp, Google My Business, Trip Advisor, or the Better Business Bureau and other online platforms to get a better idea of ...
Buying a business involves a lot of risks that need to be analyzed before moving forward in the deal. To properly assess all the aspects of a business purchase you should conduct commercial due diligence, but before entering deeper into the deal, it's a good idea to prepare these 10 questions to ask when buying a business.

1. Why are you selling the business?

The first question that you need to ask the business owner is the reason behind the sale. This sole question can determine whether you should remain interested in the offer or not. The following answers can be a good indicator that you should continue with the business acquisition: The business owner wants to retire, has health or personal issues They want to focus on other ventures or seek different business opportunities They are unable to continue operating the business due to a relocation They are no longer passionate about the business On the contrary, the next answer would be a red flag, so you must continue carefully and gauge your options. The business is performing poorly The business owner is no longer capable of sustaining the company They think the market opportunities are decreasing Whatever ...

Earnout payments

Reaching an agreement on the purchase price can be one of the most difficult aspects of a business transaction, as it requires strong negotiation skills from both parties.  When there seems to be no consensus about the final price, the parties can include an earnout provision in the agreement as a strategy to close the deal. 

What is an earnout?

An earnout is a contractual provision commonly found in mergers and acquisitions in which a seller is to receive additional compensation if the business achieves specific performance goals after the acquisition is closed. An earnout helps allocate the risk for the purchaser, for the final purchase price will be contingent on certain financial or operating conditions being met regarding profits, EBITDA margins, or earnings per share.

How do earn-outs work?

Earnouts are payments to the seller that depend on satisfying specific performance milestones that can be linked to gross revenue, employee retention earning rates, gross revenue growth rates, or almost any measurement both the buyer and the seller agree to.  The payout level of the earn-out can vary depending on different factors, such as the size of the business. Usually, the earnout portion of the purchase price is about 10%-25% percent of the purchase price. A larger earnout may be applicable when the risks are higher. Earn-outs typically take place over a three to five-year period after the closing.  For example, the ...

What is a PLLC?

A professional limited liability company, or PLLC, is a kind of business structure that offers personal asset protection to a group of licensed professionals whose business provides the same type of services.  PLLCs are formed specifically for services that require professional licensures, such as lawyers, dentists, accountants, and chiropractors. Not all states allow this variation of LLCs.  With this kind of business entity, professional service providers can have protection against taxes, debts, and judgments against the company they own. 

Difference between a PLLC and an LLC

LLCs

A limited liability company (LLC) is a state-registered entity, separate from its owners. The owners of an LLC, called members, cannot be held personally responsible for the debts and obligations of the company. This means that if someone sues an LLC, the personal assets of the business owners are not used to satisfy a judgment, nor their personal finances will be affected in the event of debt.  PLLCs are variants of LLCs.  Both business structures function in the same manner, including taxation and ownership concerns. One difference is that while an LLC allows anyone to be a member, a PLLC can only be formed by certain categories of licensed professionals. 

PLLCs

Both business entities protect the personal assets of business owners against debts and lawsuits. However, the key difference between an LLC and a PLLC concerns malpractice. Under an LLC, all owners ...