Buying a Business – 7 Things You Need to Know

An entrepreneur appreciates the benefits of buying a business compared to starting his or her own business. An existing business has laid its foundation, saving the new owner time, money and effort to hurdle the birth pains of a new business. It has trained employees as well as product brands and a company name known to customers. Below are some pointers to help you succeed when considering a small business for sale.

1. Interest in the business
You will have a better chance of success if you are enthusiastic about the field of business. For small businesses, the majority of owners are “hands-on” entrepreneurs. It helps a lot if you have some background or skills relative to the type of business. Consider also the size and location or area where you want the business to be. Remember, the small business will not just be a livelihood but also a lifestyle.

2. Time to investigate the business
Allocate ample time to check the background of the business. Why is the business for sale? Do not just rely on the seller’s word. Do your own investigation. Talk to people around the area – the neighbors, local realtors, suppliers and other business owners.

3. The selling points
Consider a business with a strong market position, one whose products or services you know about. An existing business has fine-tuned its products – designed its packaging, positioned its services, stocked its inventory and priced its offerings competitively. There is also an existing pattern of operations.

4. Reputation of the business
This is a valuable intangible asset. Ask industry sources and customers about the business. Listen and read product or company reviews. Speak to the vendors that supply the business. Check the payment history and ask if there are problems in their dealings with the company.

5. History of performance
A business in existence for a few years has a performance history as well as a customer base. Request from the seller the company’s profit and loss figures for previous years. You would want a stable and productive company that will remain so for years to come. Ask a professional to review the company’s financial statements. Has the company changed ownership in the past?

6. The valuation of the business
Compare the seller’s pricing with the valuation you arrived at after your due diligence process. A seller usually inflates the value of his or her business. Ask for the list of assets and their values. Are these free of liens or debts? Some areas of contention in pricing are the intangible assets of the business. These include the profitability and goodwill of the business, its location and customer base. The real value of a business depends on the revenue it generates.

7. The competition
It is unrealistic to expect a business for sale without competition. How much of the market do the competitors have? Will they affect the business, or is the company strong enough to withstand the competition?

Buying a business is a challenge. Focus on the success of your new undertaking and plan ahead.

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