Are you not sure what Business to buy? Need to know what is a fair deal?
Martin
Smith thought he was buying an established business with good credit
and collectable accounts receivable. The day after settlement the
surprises began.
Inventory could not be used because expiration
dates had past. Money shown as receivable had already been collected.
Vendors that were only willing to ship COD. Over $100,000 of real
problems that should have been detected during the business purchase
process popped up and almost shut Martin down.
Can you afford to be surprised? Of course not.
You have the power to not end up like Martin.
Owning
your own business is part of the American Dream. Buying a business has
many advantages over starting one from scratch if you know how. Be
prepared and get all the benefits of buying an existing business.
Tangible
benefits such as existing cash flow, existing customer base, existing
systems, knowledgeable employees, and locations can be obtained cheaper
by buying an existing business than starting from scratch.
1. Understand and Know What You do Well and Like
You
must really look at the activities you like to do and find a business
that allows you to do them. For instance some people want customers to
come to them. A retail store may work well for them. On the other hand
some owners would loose their minds staying in a store all day; perhaps
something with outside sales will work for them.
Are you a people
person, a thinker, a leader, or a salesperson? Do you like steady
hours, flexibility etc. How much money do you have to purchase with?
How much money must you make every week?
Remember the process of
buying the business is not the same as running one. Do everything
possible to make sure you buy one you will love running.
2. Make a Comprehensive Search for a Business
Make
sure you know how to look for a business. Don't just go to one source
but really check multiple reliable sources to find the business that is
right for you.
Systematize your notes so you know what you looked
at. Make sure you compare your strengths and weaknesses with the
day-to-day tasks of running the business.
3. Understand and Value the Business Properly
Understand
the basic financial techniques to value a business; it's cash flow and
other assets. Know how to prepare a basic business plan in order to
make projections into the future.
Understand how the business is
getting its customers. Know how it delivers goods and services. Know
the cash flow and how you will keep the current cash flow and then grow
the cash flow.
4. Know how to structure and finance a business
Have
a basic understanding of how the business valuation and related cash
flow tie together. Make sure you know a number of possible ways to put a
transaction together to overcome different risks.
Understand what
may be financed by a conventional bank loan, a SBA loan or seller
take-back. Understand how to take your outline deal and put it into a
final enforceable contract.
5. Perform Due Diligence Thoroughly and Correctly
Know
what to look for when investigating a company. Know how to tie
accounting records into source documents. Understand inventory,
equipment, vehicle titling and other problems. Understand what should
occur at settlement. Make sure you are getting what you have agreed to
pay for.
Bonus Tip
Recognize that the Broker almost always
represents the Seller. For most small business purchases you, the
buyer, will go through most of the process on your own. Make sure you
know enough to get select the right business and negotiate a fair deal.
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