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Buying a Business

Owning a business can be a daunting prospect. There are no guarantees that you will succeed or be happy. At some point after all your investigation, analysis, and due diligence is completed, you will still have to make that “leap of faith: necessary to proceed with the purchase of the Business. After taking this “leap of faith”, virtually every Business Owner will tell you they would never go back to being an employee. Here are some items you should check when considering the purchase of a Business:

  • How long has the Business been in business?A Business with a long track record generally means there are good reasons it will continue to operate and be profitable. It shows a good reputation in the area, customer loyalty, and people patronizing the Business and using its services.
  • Why is the present Owner selling? If the current Owner just started the Business six months ago, or is 30 years old and wants to retire, you should investigate. However, keep in mind that after about six years, people tend to get restless or can begin to experience “burn-out”. Sometimes, they are just looking for new challenges, so keep in mind why the Seller is selling because it is an important question. You should get a satisfactory answer.
  • Why Are Books and Records Important? Financial records of the Business are an excellent indicator of how well the Business has been doing in the past years, and will become the basis for your projections on how to maintain or improve the Business. Keep in mind most privately owned business accounting systems are not designed to show the Business in the best light, but rather to minimize taxes the Business Owner will have to pay. An analysis of the individual expenses listed will determine which items may be “discretionary expenses” that are not necessarily required to continue with the Business going forward. A financial advisor or your Business Broker should be experienced in helping complete this analysis. Keep in mind you are using historical financial records that show what the Business has done in the past. What you can do in the future is up to you. There are no guarantees the past will or can be duplicated or repeated, and there should be reasons or expectations on why you can improve the Business.
  • How to determine if the Seller is reporting all income The simple answer is- You can’t! Not reporting income is against the law. You should only consider the income that the Seller can prove to you in your analysis. In the case where the Buyer is using an outside source for financing, the lenders will certainly not count any revenues, which are not fully documented or disclosed.
  • Can I see myself running this business every day? Many times Buyers spend too much time analyzing the financial statements, projecting the future, and negotiating the deal, and don’t step back to think about whether this is really what they want to do. Buying a business is a major commitment. It is extremely important that you become comfortable with what you will be doing on a day-to-day basis and considering if you are up to the challenge of owning your own Business. If you feel like it will work, call us and we will help you put it together.
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