Tips for Buying a Business

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The decision to branch out on your own and buy your own business is a big one and needs careful thought and planning.   To help you, we’ve outlined some top tips to remember when buying a business.

How much time are you willing to devote to running the business? 

It is important to make sure you are willing to dedicate substantial amount of time to the business you purchase, particularly for the first couple of years.   Being an active, on-site manager will not only help you proactively address concerns quickly, but will help you identify opportunities for growth and improvement.   Also, it is a fantastic way to get to know your customers and all of the detailed aspects of your business.

Follow your skill set

It is really important to do the research and find a business that most closely matches your expertise and skills.  Be honest with yourself and do an assessment of what you can actually do in the day to day running of the business versus whom you may need to hire to execute those tasks.  These are the essential skills you should already posses:

Being Organized:  You need to keep track of all the items required to register your business, such as your business registration and sales tax forms.  Being organized is also key to managing payroll, keeping tabs on your employees and their tasks, crafting an effective advertising plan, and the many other myriad of responsibilities that come with managing a business.

Comfortable in Speaking to the Public: To succeed in business, you need to be outgoing, positive, engaging in conversation and willing to give up your free time to interact with the public.  If you are not one who is keen on public speaking, hire someone who is and that can represent your company well.

Sales:  You are your company’s top sales person, the owner.  Develop speaking points about your company that you can use in conversation to turn any business gathering into an opportunity to tell people about your business.

Problem Resolution:  Every day that you are working on opening your company, you will be presented with a series of issues that need to be resolved. To survive in the business world, and to build a successful business, you need to develop problem resolution skills. Problems need to be resolved quickly and decisively. You need to gain confidence in your decision making abilities, and convey that confidence to your investors, employees and customers. Problems that you will face starting a business include finding start-up financing, hiring qualified employees, developing vendor relationships and negotiating the lease on your first office space.

Hire a qualified professional business broker

Preferably a CBI (Certified Business Intermediary) who has the experience and education to handle the deal.  The designation “CBI” means that the broker has had at least three years’ experience and has successfully studied and completed sixty-eight hours of business brokerage courses taught by the top industry professionals that are members of the industry trade group, the IBBA (International Business Brokers Association).  The IBBA has a Code of Ethics that broker members must ascribe to.

Be sure the business broker you hire has "industry experience" in the exact type of business you are looking to purchase.

How do you find/select a professional business broker? 

You can search BusinessBroker.net’s Online Broker Directory for brokers in your area.  The best way is to meet in person with a business broker in your area.  The broker may have hundreds of business opportunities listed for sale that are confidential sales and not listed in the media or online.  For further information on selecting the right business broker see our Blog Post entitled “What Exactly is a Business Broker & What Do They Do?”

Funding

If you need to get a loan to finance the purchase, be aware that banks are getting really strict with lending criteria.  The SBA program may be one potential source.

SBA (Small Business Adminstration Loan Program)

Be sure to seek pre-approval for a business purchase loan from institutions in the SBA lender network.  Learn to write a business plan.  The prospective borrower who’ll ask SBA-backed lenders for the funds to complete a deal will surely be required to submit a business plan.
  • You will also need to get an appraisal of the business being sold and the value of any real estate or other collateral posted by you the borrower, to help secure the obligation. The report of an independent appraiser will be required for both.
  • You will also be required to have business insurance and life insurance on the principals if the viability of the business is tied to an individual or individuals.  There are other lender criteria such as leasehold interest any existing child support obligations.
  • Abusiness broker representing you, the buyer, can provide immeasurable assistance with this process.

Hire a good attorney and CPA (accountant)

Whether you use a business broker or go it alone, you will definitely want to put together an "acquisition team"--- your banker, accountant and attorney-to help you. These advisors are essential to what is called "due diligence", which means reviewing and verifying all the relevant information about the business you are considering. When due diligence is done, you will know just what you are buying and from whom. The preliminary analysis starts with some basic questions. Why is this business for sale? What is the general perception of the industry and the particular business, and what is the outlook for the future? Does-or can-the business control enough market share to stay profitable?  How have the company's product or service lines changed over time?

Your acquisition team should start examining the business's potential returns and its asking price. Whatever method you use to determine the fair market price of the business, your assessment of the business's value should take into account such issues as the business's financial health, its earnings history and its growth potential, as well as its intangible assets (for example, brand name and market position).

To get an idea of the company's anticipated returns and future financial needs, ask the business owner and/or accountants to show you projected financial statements. Balance sheets, income statements, cash flow statements, footnotes and tax returns for the past three years are all key indicators of a business's health. These documents will help you conduct a financial analysis that will spotlight any underlying problems and also provide a closer look at a wide range of less tangible information.

Navigating the waters of buying a business is precarious at best.  Do be honest with yourself about your limitations and be sure to hire an experienced, licensed business broker and acquisition team to help you with the process.    To start your search for businesses for sale in your area, search our business-for-sale listings. 

About us:  Established in 1999, BusinessBroker.net is one of the leading Business-For-Sale websites.  We are a member of Georgia Association of Business Brokers (GABB) and International Business Broker Association (IBBA). 

We can direct you to a business broker in your area to assist you with either purchasing or selling a business.  Please contact Mary-Beth Tedder at 877-342-9786 or by email mbtedder@business.broker.net to get started.

 
  • Author: Matt Maxwell
  • Date: September 23, 2013
  • Category: Buying a Franchise or Business
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