by Sarah E. Needleman – August 1, 2011 (full article and column available on wsj.com)
Thinking about buying an existing business?
Many wannabe entrepreneurs opt to go in this direction… But there are also potential risks involved in taking over an establishment previously owned by someone else.
Here are three to consider from Steven Zimmerman, president of Restaurant Realty, a business brokerage in Corte Madera, Calif.:
1. You may have to deal with unexpected problems. Equipment doesn’t last forever… “We always recommend when someone buys a business that they have a reserve for working capital,” says Zimmerman. This way, you’ll have enough cash to cover unforeseen expenses, he explains.
2. The neighborhood could turn on you. Municipalities typically have restrictions on how late businesses can stay open… Zimmerman says he’s seen instances in which local homeowners banded together to request that a municipality change its laws to force such businesses to close earlier…. To try and avoid this kind of problem, Zimmerman suggests researching a neighborhood to find out if locals have been complaining of noise problems.
3. Remodeling might trigger legal woes. If a business’s storefront was erected many years ago, it may not be in compliance with modern building codes. Though it may be exempt from such restrictions due to its age, it’s possible that any remodeling you do to the property could change things, says Zimmerman. Before investing in a business, find out what laws it may be grandfathered in from having to follow and whether making renovations might do away with that protection.
Follow Sarah E. Needleman on Twitter @sarahneedleman.