Buying a business in Michigan
Becoming a successful entrepreneur is a big task to accomplish; placing a lot of risk in your life and potentially stress on your family.
There only two options available to you:
- Open a new business
- Buy an existing business
Buying an existing business in Michigan
Let someone else spend their time and money building out the basic infrastructure, testing the market, and working out the kinks. In theory, this is a much better option. Unfortunately in reality, there is always a reason that a business is being sold, whether it is disclosed properly or not is another question. This is where your investigation should ultimately start, and potentially end. If the reason on its own does not make perfect sense to you, bail on the deal and never look back. If you can 100% understand the seller’s motivation then it may be worth your time to actually find a professional to work with and to proceed from there. There are a lot of aspects to a business that need to be thoroughly inspected and reviewed, many of which require a professional that has specific experience analyzing the data. If you are brave enough to try and take it on yourself, there are a few things that you should at least consider throughout the process:
- Make sure that you have a clear understanding of all the inventory included in the sale, and make sure that it is all owned free and clear without any liens.
- Consider other fixed assets including the building, associated equipment, furniture, and even the fixtures.
- Try to review any related legal documents up front so that you know what commitments you are going to be held to.
- Find out how the business is structured or incorporated by checking the state website.
- If available, request at least the past 3 years tax returns. Keep in mind these will not always clearly reflect the discretionary earnings, but again this is where a professional’s advice is recommended.
- Other customer and sales records are a plus, including information from the point of sales system or other associated data.
- Find out how much money they are currently owed and how long it typically takes to collect that money.
- The current advertising strategy and spend are very important; if possible find out exactly how much it costs them to acquire a customer and how much on average they are making from each of these people.
- Local or national competition play a major role in future growth strategies including market penetration and pricing comparisons. Obtaining some basic knowledge here is a must.
- The location may, or may not be, important to the business. Explore this further and think through a best case versus worst case scenario is the business gets moved.
- With a simple Google search alone you can get a pretty clear idea of a business’s reputation. But, it never hurts to talk to actual customers directly if at all possible.
- Find out how many employees currently work there, what they are getting paid, and their technical titles.
- Safety may be a major concern, and this is directly correlated to your cost for insurance.
- Identify any other unseen liabilities such as product warranties or potential litigation.
Opening a new business in Michigan
Of the two options, this is the riskier option. It affords certain luxuries and benefits; you are not inheriting anyone else’s problems are are able to creatively design every last detail from scratch. Regardless of the motivation, there are certain steps that need to be follow in order to properly open a new business in Michigan. Take a good look at each of them and ask yourself the hard questions upfront before investing any time or money. Is this something that you really want to do. Are you capable of actually going through with it? When hards times inevitably occur, do you have the perseverance needed to get through it? The financial resources and emotional support required?
1) Start by writing a solid game plan
There are many experts that insist on writing a specifically formatted business plan. For some people this works great, but for others that is just not the case. What you are looking to do here is get a complete picture together of what you are ultimately trying to accomplish; the business as you would like it to be. Begin by focusing on the positive aspects as most of us find this more appealing and enjoyable to do anyhow. But, you can not stop there. Take your plan and run through it at least 3 times, adding details to each section each and every time. From there, think of everything that could go wrong to build out a devil’s advocate styled business plan. This is similar to the general pros versus cons list that so many of us routinely use, but again you want to apply the same process as mentioned above, running through this specific list 3 more times to continue building it out. Now, take your time reviewing both of the plans and find a way to synthesize them. You will end up getting rid of some of the positive ideas while ignoring several of the negatives; that is what you are supposed to do. In the end, your plan will be much more realistic, easier to actually achieve, and capable of helping guide you through adversity.
2) Find the proper help and guidance
There are many places that offer such services for free; how much quality you are going to find there is the unknown. Just as proper due diligence has been recommended and outlined above, you should spend just as much time and energy trying to find the right business broker to work with.
3) Research local demographics and trends to find the perfect location
A beautiful storefront can make a huge impact on business and ultimately gross revenue, but more importantly you want to analyze the traffic whether it is foot or auto related. The small things can make a big difference here as you will need to start thinking further down the line at this point. A billboard may be the answer to attract the attention of potential customers driving by, but when walking through a mall the smell of a freshly cooked cinnamon bun works better than the most stunning of displays and it costs a whole lot less.
4) How are you going to pay for all of it
Saving up enough money to actually purchase the business can be difficult enough, but most people forget how much it is going to cost to keep the place operational. Yes, you are going to need some working capital in order to purchase inventory and cover other day to day expenses. No, it is not going to be easy to borrow this money, or cheap even if possible, so make sure that you have it available up front.
5) The legal structure that benefits, and protects, you the most
Seek the advice of an accountant and an attorney regardless of the cost, there are many nuances here that could cost or save you thousands!
6) Let the state know what name you are going to be conducting business under
As hard as it is to believe sometimes, the state does care about what your are doing in some regards. File the necessary paperwork before conducting any business; the cost is minimal and most of it can now be completed online.
7) Be prepared to pay your taxes
Both plan accordingly and again fill out the necessary paperwork in order to properly accomplish this in a timely fashion. This is not as easy as you would expect so get ready to jump through a few hoops or to pay a professional to help you out.
8) Find out if there are any special licensing requirements or permits needed to operate
Overlook this step at your own peril as the penalties and fines can be stiff. Even worse, operating with proper clearance may eliminate your eligibility from the very required permissions that you ultimately need to obtain.
9) Find the right employees and learn how you need to treat them
They are not your children, and do not work for free, so it is important that you pay and treat them properly. Finding the right help can be one of the best, or worst, things a business has going for them. Loyal employees are hard to find, so when you do make sure that you are capable of keeping them long term. Business owners often forget the true cost of turnover, including the training, downtime, and overall effect of the coinciding frustrations.
People to help you in other ways
Even those with no business experience can be there for you to help you through the undertaking. Sometimes, it is simply a kind wor of encouragement that gets us through the toughest of times and nothing more.
For more great advice, check out the Small Business Association’s website.