Money in Tech: How to Buy an IT Business

Starting a new IT company comes with a lot of hassles. Buy an existing one with this guide on how to buy a business in information technology.

While some of the most successful businesses around work hard to build something just to sell it later on, there’s a world of entrepreneurs specializing in acquiring. If you want to buy a business, getting an IT business is one of your best bets when it comes to buying something with massive growth potential.

Before you buy a business, you should consider what it takes to buy a company in this industry. Here are five things to think about before you put your money down.

  1. Look for an Albatross

Before you buy any business, you need to do a fair amount of research. You should start with a cursory Google search that includes the name of the business, and another with the name of important figures along with the word “scandal”. You’d be surprised at home many people make a bid or an offer on a business without looking for skeletons in their closet.

The real reason that a business is for sale might be that it’s unsuccessful. If you can see why and how you could fix that, you might be getting a deal. If it looks too good to be true, make sure that it’s not.

There could be a negative news story that you missed which is driving away people from investing in the company. There could also be a lawsuit that was quietly settled but which could haunt you for years to come. If the company exercised illegal dumping practices or engaged in environmentally harmful practices, that could be your responsibility in the future.

If the business resides near other businesses, talk to the nearby owners. You might find out some insightful information about the business or why it’s sitting available.

  1. Look for Extras

When you buy any kind of business, there’s the chance that there’s a set of things that come along with the price of the business. If you buy a pizzeria, do you get the pizza ovens, the dough mixer, and the delivery vehicles? Do you get to keep the company name, any contracts with local suppliers, or any office equipment?

Think about what you’re also held down to when you buy the business. If you don’t look at your contract carefully, you could be locked down to work with people who drove the company to sell in the first place. If you’re still required to honor certain contracts or to keep certain people employed, it might not be worth it.

You also want to ensure that there are no debts or liens against the property if you’re buying that, too. People loan money with their businesses and assets as collateral all the time. Your business could be seized out from under you the day after you buy it if you’re not careful.

  1. Check What’s Driven the Business

If you’re buying a well-performing business, you won’t know whether that’s true until you look at the company’s finances. Hire a CPA to help you comb through their books to perform an audit. You need to look carefully to ensure that the business you’re about to purchase really has the future you think it might.

Make sure you also question who created the books in the first place. If the finances were managed by an outside accountant, then it could be that the numbers are legit. However, if the numbers were controlled in-house, they could have been prepared by someone who was trying to massage the numbers.

Look for accompanying documents to explain the conclusions that the accountant drew. The report from an auditor will certify that the review was conducted. If you aren’t happy with what you’re looking at, ask the owner to give you access to all of the data so you can make your own assessment.

  1. Look into Financing

When you’re thinking about buying a car, you would consider whether you can really afford it before you signed on. As wildly different as it is, you need to think of a business the same way. When you’re thinking about buying a business, you need to figure out how you’re going to finance it.

If you walk into your offer without the cash to lay down for the business in your pocket, you’re going to have to find other ways to pay for it. You could ask friends and colleagues who might want to go into business with you. You can also talk to a traditional lending institution to see if they would be willing to finance the business.

Banks and credit unions are usually happy to get involved with an already successful business. One that’s established carries far less baggage than one that’s trying to get off the ground.

Ask the seller if they’d be willing to help finance part of the purchase. In this case, they’ll hold a promissory note for part of the purchase price until you’ve made back enough money to pay them.

  1. Make Your Offer

If you’re happy with everything that you’ve seen so far and there’s nothing scaring you away, then it’s time to make an offer. The thing about making an offer is that you should never make an offer that you’re not willing to back up. In some contexts, you could be held to this number and in others, you won’t be taken seriously in the business community if you back out.

Most business owners are going to want to see some cash on the table before they agree. They might ask you for a non-refundable deposit before they’re willing to agree to sell to you.

Check out this guide for more information once you’re ready to buy.

Buy a Business Confidently in the IT Industry

The best industry to buy a business in during this era has to be the IT industry. You’ll have so many potential options for growth, margin, acquiring other businesses, or even just creating powerful partnerships.

If your decision to buy has shareholders in turmoil, check out our guide to working it out.