Evaluating a Business for Possible Purchase

After you have made the decision to purchase a business, much of your future success will depend on the actions you take before you ever complete the transaction. While purchasing an existing business has many advantages over starting a new business from the ground-up, those benefits are only advantageous when you understand how to properly evaluate a business for possible purchase.

There are a number of factors that you should take into consideration when evaluating a business for possible purchase. Just as it’s never a good idea to fall in love with a home before the inspector finishes his final report, it’s also never a good idea to imagine yourself operating a business before you have taken the time to evaluate it properly.

Begin by evaluating the location. As the old cliché in the real estate industry goes; location really is everything.  Many businesses, while seemingly possessing all of the other factors for certain success, have failed simply because of location.

Consider the specific needs of that business and industry as well as zoning requirements, the overall safety of the area, the population density and customer base as well as the nature of surrounding competition. When considering location, it is also important that you analyze traffic patterns and accessibility as well as parking conditions. Finally, don’t forget to factor in the separate cost of the location.

No comprehensive evaluation would be complete without taking into consideration the physical assets of the business such as equipment, fixtures and existing inventory. Does everything appear to be in good condition or will numerous items need serious repair once the purchase is complete? What about the inventory? Is it well stocked or will you need to replenish or make changes?

Make sure you spend a good bit of time analyzing the products and services offered by the business. If you are not completely familiar with this industry, this aspect of the evaluation will prove to be even more critical.

Factor in existing relationships with suppliers and distributors while analyzing the existing customer base and loyalty level. Are the products and services already offered strong enough to withstand a change in ownership? Will the customers continue to support the business or will you need to begin building from scratch?

While your purchase of the business certainly doesn’t include the existing personnel, in most circumstances it is anticipated that you will retain the existing employees-at least for awhile.

Take the time to find out whether you can work with the personnel already on staff or if that area of the business may need overhauling as well. Ask to review management records and also be sure to take a step back and evaluate how customers respond to existing staff members. Their response can speak volumes.

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