5 Things You Must Do Well When Buying a Business to Not Get Burned
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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
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
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
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
Make sure you know how to look for a business. Dont
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
Understand the basic financial techniques to value
a business; its cash flow and other assets. Know how to prepare a
basic business plan in order to make projections into the
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
4. Know how to structure and finance a
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
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
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.
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
About the AuthorGregory R. Caruso is an expert at helping business owners plan
and execute the sale of their businesses. Greg is an inactive CPA,
attorney, and business owner with 20 years experience. He can be
reached at www.successfulexits.com.
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Article Published/Sorted/Amended on Scopulus 2006-06-07 23:20:57 in Business Articles