Places to Look to Find A Business to Purchase

The idea of beginning a search to look for a business for sale may sound exciting, but in reality it can be much more difficult than you might imagine. While there are certainly plenty of businesses for sale on the market today, one quick look will reveal the fact that the marketed is littered with deals that are questionable and some that are downright ludicrous.

The methods that you use to find a business for sale will primarily depend on whether you have a strong need for confidentiality or not. If you are in a position to look openly for a business for sale, you have far more options available to you. On the other hand, if your search for a business must be more circumspect you will need to be a bit more creative in regards to how you go about it.

As anyone who is experienced in looking for a job will tell you, the best place to start is within your own circle of friends, family members and acquaintances. The same is true when you are looking for a business to purchase. Many times this can be the quickest and easiest way to locate businesses that are on the market. One word of caution; however, this route should only be used if you are willing to be open about your interest in purchasing a business.

The classifieds are a traditional place to browse when looking for a business for sale; however, you must be aware that this type of search is littered with cons, scams and deals that are in general nothing but pure junk. Since there are some genuine gems mixed in with the other not so good deals, you shouldn’t ignore this area all together. Simply be cautious and make sure that you put your investigative skills to good use.

Another area that can prove fruitful of course is trade associations. Since it is in the best interest of the trade associations for the businesses among their membership to succeed and flourish, they will naturally be quite open and willing to help you locate businesses that are looking for new ownership.

The Internet is rife with businesses for sale, but much like classified ads, you must exercise due caution when considering leads for business for sale on the Internet. This doesn’t mean that there aren’t some good deals among them; just don’t allow yourself to get carried away before you fully investigate any offer.

Due Diligence When Purchasing  A Business

The moment you become interested in purchasing a business, you need to become engaged in practicing due diligence. While many prospective business owners view the practice of due diligence as only conducting a financial review of an existing business that has caught their interest, true due diligence encompasses a much broader spectrum than mere financial considerations.

In its entirely, practicing due diligence means that you will need request copies of all documentation relating to the business in question. This means that you will need to review copies of all contracts and loan agreements as well as leases, inventory records, management reports, sales and facility maintenance records, reports for both accounts receivable and payable, payroll and benefits records, marketing materials, customer records and any records regarding business assets.

You should also take the time to learn about any litigation the business has experienced in the past or may be experiencing at the current time. The same is true regarding any tax audits or insurance disputes.

Additionally, just as due diligence requires that you spend some time thoroughly investigating the financials of the company you are considering for purchase; it’s also an excellent idea to make sure that you investigate facilities. You might even find that it’s wise to retain the services of an experienced inspector in order to determine whether there may be problems in the facility that could create issues later on.

Finally, you should also ensure that you exercise due diligence in uncovering any matters related to marketing and the overall industry of the business you are considering. This type of investigation will include reviewing the size of the market as well as current competition. You also need to spend some time reviewing the primary vendors and supplies in an effort to understand how these factors impact the dynamics of the business.

By taking the time to do your homework, and practice due diligence, you can better protect your future financial investment and make sure that you purchase a successful business instead of acquiring a profit draining lemon.

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.

How Do You Analyze the Financials of the Company you are Looking to Purchase?

The first rule of thumb that you must understand when analyzing the financials of any business that you are considering for purchase is that you must look at the financial records for at least the last five years. Minimum.

Anyone can cook the books and make it appear that they are showing a profit when in fact they could be drowning in a sea of debt and looking to cast their albatross off to an unsuspecting buyer.

The critical point here is to thoroughly investigate all records to determine the bottom line-are profits increasing or decreasing and by how much? In order to do this you will need to evaluate the financial records from several different perspectives. Do not simply rely on the information provided to you by the seller. Go in armed with an arsenal of your own questions and make sure you have cleared enough time in your schedule to complete a thorough investigation.

Always make sure that you ask to see the operating expenses. This will include the amounts of money going in as well as out of the business. Now, unless you are extremely familiar with the industry and know without a doubt how much these numbers should amount to; it’s always a good idea to compare these expenses to those of similar businesses.

A thorough financial review will include scrutiny of the following documents: past income statements, cash flow statements, balance sheets, articles of incorporation, past tax returns, statements regarding projected financials and any liabilities documentation. Also ask for documentation on any past or pending litigation as well as copies for all major contracts.

You should also take the time to have a thorough credit report run on the business. This step can help you to determine exactly where the company stands and also perform a check-up on the information that has been provided to you by the seller. If everything looks good on paper, but the credit report comes back with a seriously low score; this can be a strong indication that the information you have been given has been cooked.

Finally, don’t try to go it on your own. The most experienced and successful business people in the world will tell you that they rely on the advice of experienced accountants and attorneys when considering the purchase of a business.

Buying a Business vs Starting A New One.

The prospect of owning and operating your own business can be a heady experience; however, the reality of becoming an entrepreneur quickly reveals numerous decisions that must be made before your dreams can become a reality. One of the first decisions you will need to make will be in regards to whether it would be better to buy an existing business or begin an entirely new one. While both avenues have their advantages and disadvantages, there is much to be said for the idea of buying an existing business.

As surprising as it may sound, purchasing an existing business can be less expensive than opening a new business in many regards. Even if you are not constructing a building from the ground-up to house your new enterprise, many times there are costs associated with opening a new business that simply cannot be anticipated from the outset. When you opt to purchase a business already in existence, you do so with the firm knowledge of the amount of money you will need to invest in order to get in on the ground floor. While you can always anticipate additional costs for other expenses, at least you have a firm foundation on which to start for accounting purposes when you purchase a business.

One of the most frightening aspects regarding the start-up of any new business is the fact that you will need to start from scratch in terms of customers, vendors, employees, equipment and systems. This spells additional investments of not only money but time as well. A primary benefit to purchasing a business that has a history is that you will be able to take advantage of an infrastructure that is already in place. Even if the company has not had a glowing success record in the past, you can save tremendous time and money by not being forced to start from the ground up.

Finally; if you decide to go with the route of purchasing a franchise you may well find that the presence of a support team that is already in place can be invaluable. Starting a brand new business is unfamiliar territory for many people, but the option of purchasing a franchise gives you the benefit of the knowledge and experience of the franchise team standing behind you. Because it is their name on your business, they are invested from the very beginning in your success.