You may have just decided to buy small business for the first time, or maybe you are still toying with the idea of doing so. In either case, you would probably want to know what you should watch out for while buying a small business in India. In this article, we will discuss a few important considerations to be kept in mind while you are on the journey of acquiring a small business.
Top 5 Key Consideration Before Buying Small Business or Startup in India
1. Don’t Be ‘Sold’ While Buying
As a first-time buyer, it is possible that you will be overwhelmed by the businesses that are presented to you, and that you will take the seller’s words at face-value. It is important not to get ‘sold’ on a business or idea while buying, and to keep your professional judgment as objective as possible. Do intensive research and due diligence before you commit to anything. Have a team of professionals evaluate every business thoroughly, instead of giving in to the words of any friend, colleague or family member.
2. Taxation Consequences
There are several tax implications associated with buying a small business in India. These include capital gains tax, previous year’s tax liabilities of the business, tax provisioning of the business for the forthcoming years, tax credit / refund, changes in taxable income of the buyer, and so on. Ignoring tax implications can land you in trouble even long after the transaction is closed. It is wise to have a Chartered Accountant or a Taxation Expert review the tax implications of your deal and advise you on the same.
3. Don’t Invest Money That You Can’t Afford to Lose
Remember that investment in a business is a risky, long-term affair. It doesn’t come with the privilege of certainty unlike other options such as bank deposits – which is a fair game, as the returns of investing in a small business are much higher too! But the thing to keep in mind here is that you should not invest money which might be required by you or your family in the near future. Invest earnings that you can afford to have locked up for years, or may be even lose, in the worst-case scenario. The bottom-line is that your professional decision to invest in a business should not affect your personal life.
4. Know Your Rights
Are you exercising all the rights of a buyer? For example, as a buyer you have absolutely no responsibility to take on the liabilities of the business you are buying or that of the seller. You also have the right to restructure the business as you may deem fit post purchase. There are several other significant rights such as right to full disclosure of business information by the seller, right to seek legal help in case of any misrepresentation, and so on. Make sure you know your rights as a buyer and exercise them when needed!
5. Get Professional Help
Last but not the least, it’s better not to take it all on yourself the first time. Don’t have a way with words? Get a negotiator on board. Find it difficult to crunch numbers? Get your CA to do it for you. Unable to source good businesses? Get a consultant for deal sourcing. Feeling lost about the legal implications? Get advice from a lawyer. The idea is that your first-time buying experience should be as smooth as it gets, and you should definitely not end up losing money or sleep!
Final Thoughts
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