Buying a business is an important step and a life changing experience. Checking the financials of a business is the first step of course when making a decision to purchase. Ensuring that there is adequate cash flow to support the business, support you as the owner, and pay off the debt service in a reasonable amount of time makes sense. But the next step that is at least equally important is making sure that the business is the right fit for you, the new owner. Make sure that you wake up in the morning say to yourself “I get to go to work today” not “I have to go to work today.”

Determining that the business is the right fit for you is different from person to person. If you’ve been in the auto mechanics business all of your life, then owning a muffler shop or a quick lube might be tailor made for your personality and life style. But, if you are thinking of buying a pizza parlor and have never worked in food service before, that’s almost life buying a three piece suit without ever trying it on, or a new Mercedes without taking it for a test drive first.

If the business is new to you, then work in it for a while before you make your decision. If you’ve picked a business out that you are interested in, tell the seller your offer is contingent upon first working in the business with him for 30 days to determine that the fit is right. If you haven’t picked a business out yet and are just curious about an industry, nothing replaces getting an entry level job in that industry to get a feel for it.

If you buy a business you’ll own it for years to come, and perhaps for the rest of your life. Making sure that you truly enjoy what you are doing is the real American dream, so take the business for a test drive.

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Buying a business could be your most important decision in life, but many people treat it in a cavalier fashion. Most people would consult a professional in any other major transaction, but don’t think of going to professionals for business purchases. With that in mind, consider using a reputable business broker.

A good broker can be found in your area simply by calling or emailing their professional association, the IBBA, or International Business Brokers Association. Or, ask friends who own businesses if they’ve had good or bad experience with a business broker in the area. Business brokers who have earned their profession’s highest professional credential will have CBI after their name on business cards. This stands for Certified Business Intermediary and assures the buyer that the broker has been properly trained and is held to high ethical standards.

If you don’t use a broker and represent yourself, then you must first determine that the business is right for you. Is it something you will enjoy doing? Then check the financial health of the business. After signing a standard non-disclosure agreement the seller should be willing to show you his tax returns for the past three years and allow you a chance to visit with his CPA.

Make sure that the business is brining in enough money to pay for itself, pay you a decent salary and cover its own debt service. If there is real estate involved this could be a 15 to 30 year loan. Without real estate, most lenders prefer seven year loans.

Determining the true value of the business and making sure that it matches the owner’s asking price is next. After looking at the tax returns and a profit and loss statement you should be able to determine true owner’s cash flow, which is net income plus discretionary spending from which the owner benefits, such as health insurance, a company car or a company owned cell phone.

Take the cash flow and multiply by two, then add in the wholesale value of any inventory, fixtures, furniture and other odds and ends. This will show you the value of the business itself. If there is real estate involved, hire an appraiser and add in that figure. These rules of thumb hold true for most businesses, but when you talk to your banker or SBA representative you may find some exceptions.

Determine how much of the purchase price the owner is willing to carry as owner financing, and if the amount seems reasonable, your next and final step is to find an attorney who is experienced in business closings. Have him check the contract carefully and you are usually in good shape.

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Determining the value of a business you are considering purchasing is a tricky subject. Most owners think their businesses are worth far more than they are. And in the end the true value of anything is determined by what a willing seller is willing to sell it for and a willing buyer is willing to buy it for.

Step one would be to acquire the use of West’s Business Brokerage Handbook and skim through the rules of thumb sections. If you are looking at a dry cleaning business Tom West, the author, describes the nationwide average values of dry cleaning businesses using either the gross sales percentage method—usually from .75 to 1.5 times the annual gross sales; or the cash flow method, which is usually 2.5 times the net income plus discretionary spending the owner benefits from. Value of real estate included is added to this figure. As you can see there can be a wide variance.

Of course, nothing really beats a true business valuation, or third party independent appraisal of the value of the business. A business broker who is also a certified business intermediary can probably arrange for a valuation from one of the companies the SBA recognizes. These valuations for a small business can range in price from $800 to $1,500 with a reputable company. But beware! There are several companies charging from $5,000 to $10,000 for worthless “valuations” that are simply overpriced opinions. If considering a valuation, first check the price and make sure it is in the lower range. Then ask the representative if it is accepted by the SBA and if he can prove it. Your banker, if he is experienced in business purchase loans can probably recommend a company.

Another recommendation in determining the value is observation. Remember that many small business owners have underreported income and over reported expenses on their taxes, with the goal of paying as small a tax burden as possible. If you can spend a few days in the business observing, with a notebook and calculator, you’ll get a good idea of what the average customer spends and therefore what the gross sales should be averaging.

After determining the cash value of the company, the most important thing to determine is, what is the value of the company to you? You may have found an under priced bargain when you think of the freedom to determine your own destiny provided by business ownership.

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Are you an entrepreneur? Not everyone is, and that is fine. The world needs entrepreneurs, managers and worker bees, but determining the category that you actually fall in can help make your life more successful. Remember that an entrepreneur is a risk taker and a builder who rejects the commonly accepted idea of security in a paycheck signed by someone else.

The entrepreneur is the one who signs the paychecks for others, and has the self-confidence to take the risks necessary to build the business that provides the jobs for others.

The entrepreneur must be creative, hard working, smart working, persistent, motivated, full of stamina, dedicated, energetic and able to direct the efforts of others. He must be able to delegate duties, train personnel, be affable with all, and enjoy his time spent. The entrepreneur must be, above all, confident in his own abilities, and it must not be blind overconfidence, but confidence in himself as a competent individual.

These qualities hold true of many people who are not entrepreneurs. Many company middle managers, for instance. But the quality that truly sets the entrepreneur apart from all of the others is that the entrepreneur is willing to place his time, money and very life at risk for a dream that he is creating. IN that sense the modern entrepreneur is the equivalent of the pioneer farmers and ranchers of the American frontier, the entrepreneurs of their days.

And of the shopkeepers and merchants who went west, and the prospectors of the California gold rush. Today’s entrepreneurs are the under appreciated creators of jobs for other people, and comprise the fastest growing part of the American economy. It is the small business entrepreneur who drives the economy and makes it possible for everyone to make a living, pay taxes, support charities and contribute to the American way of life.

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Choosing the best name for your business is a creative act, but it demands common sense as well. The business name should be catchy and easy to remember, it should reflect what the business does, and it should inspire confidence.

One school of thought is that your business name should include the name of the town in which you live because that inspires some sort of official status. In previous years names of that type were popular and there may have been a point to that.

If that is the case and you are an accountant living in Pittsburgh, then a name like Pittsburgh Accounting and Tax Service may serve you well. That name will appeal to more traditional and conservative customers. But, if your accounting service takes the stress away from doing taxes, and you want something a little more catchy, then Stress Free Accounting might serve your needs more.

Avoiding the boring is important. Nothing is more boring than the first thought most people have—Your Name Enterprises. A business is an enterprise of course, but the name really doesn’t say anything to your customer about what you can do for them.

Another business took the traditional approach, but added to it with a slogan that was used as a part of the name. That company was Springfield Writing Service, a company that produced resumes for job seekers. The slogan “Resumes That Work” appeared under the company name on all company literature for several years, and eventually the company was thought of by most people simply as Resumes That Work. When the internet age came, they simply adopted their slogan as the new company name and even the address for their web site, resumesthatwork.biz.

A great way to find a business name is to glance through the Yellow Pages and newspapers of other cities, far away from yours. Look for businesses like yours that have names that appeal to you, and think of variations, and ways you can alter the names to fit you. And always remember that it is the name of your business that leaves a first, lasting impression.

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Creating a business plan is much like drawing a blueprint for the success of your business. It is an exercise that helps the entrepreneur get all of his thoughts in the proper place, and determine what you need to do for success and how to get there, much the way a road map takes you from one town to another.

Parts of the plan usually include: an introduction – defining the purpose of the plan; overview of company – defining what the company is and will be; product description – describing the product the company will sell; marketing and sales-outlining the venues which will be used to selling product such as TV advertising, personal selling, public relations, newspaper advertising, etc; market comparison-describing the current market for the product; stage of development-showing exactly where the company and products fit in the big picture; market trends—how the market is changing, for instance in the world of fast food the trend today is towards multi-concepts at one location; competition—showing who the company is competing against, their strengths and weaknesses, the way a general views his opponent during wartime; management—bios or resumes of managers and key personnel, showing their qualifications and how they can symbiotically interact with each other for the good of the company; and financial information, especially current financial statements and sales forecasting—predictions of future sales.

Your business plan is a living document in that it can be changed as the market and other conditions change, but gives a guide to adhere to. Creating the plan requires the entrepreneur and his key associates to look at each section, pool their knowledge and take and honest inventory of all of the factors involved. They need to discover the strengths and the weaknesses of their business model, and where they are weak determine ways to either de-emphasize that aspect, or find key personnel who have skills in that area. While it may seem to some like a mundane chore, writing and creating a business plan is the first step to success.

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Choosing a structure for your business is an important step, and requires doing your homework. Not all structures as suited for all people and all businesses. Basic structure types are sole proprietorship, partnership, limited liability company and corpor-ations. Variations within these structures occur in different states according to various state laws, but are all very close.

Sole proprietorship – the most common type of structure is the sole proprietorship. In this structure, the businesses is in essence another name for the business owner. All profits belong to the owner, and all debts and liabilities are the responsibility of the owner.

This is the simplest type of business structure to set up and simple bookkeeping procedures can be used. The upside to this business type is being taxed only once. The owner’s profits are taxed as income. Most sole proprietorship owners save receipts on all purchases and look for ways to declare items as business expenses to keep taxes low. On the downside, if the business is sued the owner is liable, and if the business acquires debt is personal debt to the owner.

Partnerships – a partnership is just like a sole proprietorship but with more than one individual. Most business professionals recommend, rather than a partnership, dividing shares in a corporation or limited liability company to keep things neater and less confusing and to offset personal liability.
Limited Liability Company – or LLC, actually a very simple form of corporation in most states. It limits the liability of the partners or shareholders and is formed for a specific purpose, such as operating as a business. It is seen as a separate legal entity legally and offers taxation benefits to owners of small companies that are not always available to corporations.

The LLC offers, as the name implies, limited liability. If the company is found liable in a lawsuit only the assets of the LLC can be attached, whereas in a partnership or sole proprietorship the owner’s assets are at risk. The LLC offers many of the benefits of a corporation, with a simpler structure.
Corporation – the corporate structure offers the most protection for shareholders.

It is also the most complicated type of structure to set up. While an owner can set the corporation up on his own, most people hire lawyers to assist in the process. Corporations are regulated by the states in which they are registered and by the federal government. While an individual can form a corporation and own all of the stock himself, he must have officers and a board of directors, and these individuals are tasked with ensuring that the corporation follows all state and federal laws and regulations.

Advantages to a corporation include legal protection from debt and liability, but disadvantages include double taxation – the salary of the owner as well as corporate profits are taxed, and less flexibility of action.

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Financing a business is always an important decision, and one subject to many myths and misunderstandings. Many people think that grants and venture capitalists are flowing like rivers. The truth is, while grants for starting a business do exist for some specialized categories, they are hard to get and there are relatively few of them. And while there are venture capitalists out there who will invest in an idea, they are very particular and usually want a large percentage of the new business venture for putting their money at risk.

The most likely place to acquire business capital is through a loan. The easiest loans to get, and those with the lowest interest are those secured by real estate or some other property you may own. If you have a lot of equity in your home, consider refinancing it to raise the money you need. If you own other property of some sort, you have collateral for a loan, and may have good luck with a local banker you know and who knows you.

If you have money invested in a 401K or IRA retirement account, that can be used as collateral for a business loan. The downside is that you are putting your retirement savings at risk, and usually only about 50% if the value can be borrowed due to early withdrawal penalties if the loan had to be called.

Other possibilities are the Small Business Administration, or SBA wing of the federal government. They rarely make loans themselves, but if convinced that you have a reasonable chance of success they will guarantee a loan with a local lending institution. As a general rule, they will want to see a business plan and financial statement and be assured that you have a chance of success.

If buying an existing business, they will probably want to see that you have 20% of the purchase price in your own money. Part of their reasoning is that if you have $20,000 invested in a $100,000 business and the business has problems, you have a large enough investment to work hard for success and not just walk away.

Some lenders specialize in loans for entrepreneurs who can’t quite make the grade with the SBA or the local bank. They charge higher rates of interest, but are more willing to make the loan. If buying a franchised business, many franchisors have their own financing plans. They are willing to risk money because they have a strong success rate, and they very carefully scrutinize the applicants.

One national radio talk show host often says that when needing business capital the best source is people who love you. Relatives, friends and others who know you and believe in you are often the best source of capital.

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What investors are looking for is a very simple question, with a very simple answer. Investors want a return on their investment. In other words, they want to be assured that if they invest money in an enterprise, that they have a better than average chance of that investment of money making more money for them. They want to see profit.

Getting a little more specific, investors want an assurance that there is a need for the product or service that a company is marketing. For instance, there would be very little market for pork sandwiches in a predominantly Muslim country because the people there don’t eat pork. On the other hand, a gourmet coffee bar in a college town would have a built in demand for the product offered, gourmet coffee.

After this assurance, investors want to know that the management team and key players involved in the business are competent, that they know what they are doing and are capable of running the business and making a profit. That is the reason that most business plans include resumes for the managers and key personnel.

After key personnel are scrutinized, investors will look closely at a marketing plan to see how the company plans to make a profit. Marketing is a misunderstood work. Because telemarketers are so common, many people think marketing just means selling. Actually selling is a part of marketing. So is advertising, which is paid for and publicity, which is hoped and prayed for. And that is the difference between the two.

Publicity is acquired when a newspaper writes about your company, or a TV station features it on a news program. Advertising is what a company pays to have appear in various media. Other parts of marketing are promotional efforts like trade show. Investors usually like to see an integrated marketing plan, with a specific goal of selling more of the product or service offered.

The IMC, or integrated marketing communications approach, holds to the idea than a coordinated and consistent plan across all levels of marketing will yield better results, and investors love to see this type of plan.

In the end however the answer is still very simple. Investors want to make a profit, and if they invest in your company they want to know how you will go about making that profit.

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Frequent watchers of late night television often think that simply applying for a government grant will give them the necessary capital to start a business. While there are a lucky few who get their money that way, they are very few, and very far between.

To receive a grant to start a business it is necessary to be a part of the group for which the grant money is intended and to meet other criteria. While some people do receive grants, and some people do win the lottery, there are more practical and more likely methods.

One of those methods is offered by the SBA, the Small Business Administration While the SBA does offer loans, it offers very few loans directly and prefers to guarantee loans made by banks. The guarantee is valuable because banks are more willing to make a loan knowing that if the loan is defaulted the SBA will make the payments, and knowing that after SBA qualification the rate of default is very low.

Another way to get government help with a small business start up is to locate your business in en Enterprise Zone. These zones are also called Empowerment Zones, and are designed to create economic growth in certain areas that are in need of economic assistance.

In an Empowerment Zone or Enterprise Zone taxes, many times local, state and federal, are waived for a business to encourage the business to come into an area and create jobs. These zones are sometimes located in rural areas that have lost indigenous industry. Others are located in urban areas that have become rundown and need to be built up.

Members of some groups or communities who have suffered a particular hardship, such as the victims of Hurricane Rita and Hurricane Katrina are often given preferential status for business loans to encourage them to start up in areas that were damaged economically.

One of the most overlooked areas of government assistance in business start up is in the area of education, perhaps the most valuable commodity a new entrepreneur can have. Pell Grants and federal student loans make it possible for many people to go to college or technical school. A budding entrepreneur can use a Pell Grant to cover books and tuition to acquire a degree in business and gain the knowledge necessary for success, and increase the chances of creating a successful business.

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