Proper Benchmarks To Consider When Buying A Business For Sale

August 21, 2010

Buying a business for sale is a multi-step process and each step is important. You should never think about proceeding to the next position until the preceding step is complete and whatever you do, don’t be tempted to short-cut ever. You can view any time spent in preparation and in the revelation of facts and figures about the business to be well spent and as such you will be ensuring that no horror stories come back to haunt you when you take over.

A lot of information can be revealed before you even talk to a prospective seller. One of the most important questions you must ask yourself before you go forward is what kind of enthusiasm you possess for the type of business you have your eye on. Do you really want to be involved in that industry and does it represent an area that you truly want to be engrossed in? Be advised, that unless you want to be a completely “absentee” owner and are considering the many additional steps that you need to take if this is the case, you should be enthusiastic about the business that you are getting involved in.

A process of due diligence requires you to inspect all kinds of documentation:

* Financials: these documents will include balance sheets, payroll records, tax reports, reconciliation documents and profit and loss statements. If the seller claims a considerable amount of “cash sales” but cannot point to these within tax declarations, then they cannot be counted and you must ignore them.

* Employee records: including information on individual behavior, attendance, length of service and pay scales.

* Licenses: including federal, state, city, county as appropriate, plus any certification licenses you must possess to operate the business. It would be in your best interests to look at records independently, certainly if you believe there may have been any problems in the past or possible discrepancies.

* Equipment records: including age, depreciation, maintenance, replacement cost, and any required inspections.

* Inventory records: re-saleability, turnover and overall condition.

* Supplier contracts: are they transferable, do you have alternatives and is there goodwill?

* Property records: are any rental agreements transferable to you without any problem, as this can be particularly important.

If you find that all records, licenses, contracts and agreements are in order and are workable for you going forward, you may be wondering how to arrive at a good value when you buy business assets. A number of different ways to look at this exist. Some of the methods used to calculate include:

* Asset-based multipliers, where assets are totalled and value is determined.

* Rule of thumb, where industry benchmarks are used to establish the value (not recommended).

* Revenue-based multipliers – a percentage is applied to monthly or annual revenues (not recommended).

* Cash flow multiplier, is where a business owner’s profit level is added to his or her salary and any other perks and certain expenses are deducted. This method is most commonly used to determine the value of a business.

While there are many documents and figures that can be proven to backup an owner’s claim, or not as the case may be, you need to take into account significant facts. What is the age and reputation of the business, the level of competition expected, its physical location in many cases, the legal structure of the business, the quality of the premises and/or the difficulty in obtaining a new lease. When looking at a business for sale, take everything into account as you determine whether you should buy a business like this.

Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation – The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream to buy a business.

Posted by Guest Post | Filed Under **Business** | Comments

Useful Tips For Buying A Real World Business For Sale

July 27, 2010

Do you see the prospect of buying an existing business for sale as being a leap in the dark, as this discourages many an enterprising individual? If they have never been involved in such a transaction before, it can seem to be very alien. After all, it is not like buying a more tangible product like a vehicle or a house, where in many respects “what you see is what you get.” To value a business correctly, you need to look at a number of different intangibles as well as assets that need to be inspected and you also need to consider goodwill in many situations. Goodwill certainly comes into the equation in a service related business, as does a good client list and as such your process of due diligence will require you to explore and reveal quite a lot as you inspect different documents accordingly.

It’s important to remember that there are two distinct and different viewpoints. The seller will have a clear indication of the worth that he or she places on the business. This may often be inflated by a natural enthusiasm and the sheer amount of hard work and dedication that may have been put into the business to this point. Never disrespect the sellers’ point of view of course, but look at the documentation and evidence that you will find in the cold light of day and remember that it is entirely up to you to determine if you’re going to get involved and buy business interests in this way, according to your value parameters.

When you decide that you want to move forward and investigate whether to buy a business of interest, understand that this may be a lengthy process. At this time, you had better have a good level of common sense and humor and be ready to communicate at length with the seller.

It is highly recommended that you bring in expert advisers and utilize proven resources, especially if you have no real experience of running a business in this line, or niche. This is not to say that you will simply hand off all the work to these advisers, barely looking at the documentation presented to you, as the decision-making must in the end be made by you and you alone. Be prepared to review all documentation and financials yourself first and be sure that you get a reasonable feeling about them all before handing them off for further processing.

A red flag will be raised if some of the financial documents are incomplete, information is missing, or they are poorly balanced or even not reconciled. Certain precedents must be maintained and accounting procedures completed. You may be asked to sign some non-disclosure or non-compete documents before these are made available, but the financials are the rock upon which everything else is built.

No two businesses are alike and every operation is dynamic in its own right. So many external influences are involved and any number of different events can come to bear to create a variety of different situations. You will undoubtedly uncover some surprises and come across unusual figures and facts, but remember that while industry benchmarks are definitely of interest, you are focused on real-world information here.

Richard Parker is the President and founder of the Diomo Corporation – The Business Buyer Resource Center. His inspiring materials, seminars and consulting have assisted thousands of business buyers with achieving their life long dream to buy a business.

Posted by Guest Post | Filed Under **Business** | Comments

Crucial Guidelines On Benchmarks When Buying A Business For Sale

May 7, 2010

Don’t have any confusion about it, buying a business for sale is a multi-step process with each step being essential. Many times you may not proceed to the next position until you complete the preceding step and you should never be tempted to short-cut the process at all. You can view any time spent in preparation and in the revelation of facts and figures about the business to be well spent and as such you will be ensuring that no horror stories come back to haunt you when you take over.

Before you even start to talk to a prospective seller, a great deal of information can be revealed. One of the most important questions you must ask yourself before you go forward is what kind of enthusiasm you possess for the type of business you have your eye on. Is the industry that you are looking at of particular interest to you and do you really want to get actively involved in everything that it represents? Be advised, that unless you want to be a completely “absentee” owner and are considering the many additional steps that you need to take if this is the case, you should be enthusiastic about the business that you are getting involved in.

A process of due diligence requires you to inspect all kinds of documentation:

* Employee records: including information on individual behavior, attendance, length of service and pay scales.

* Licenses: including federal, state, city, county as appropriate, plus any certification licenses you must possess to operate the business. Be prepared to consult records independently to see if there have been any discrepancies or problems in the past.

* Equipment records: including age, depreciation, maintenance, replacement cost, and any required inspections.

* Inventory records: re-saleability, turnover and overall condition.

* Supplier contracts: are they transferable, do you have alternatives and is there goodwill?

* Property records: including rental agreements and portability – the latter element is of considerable importance.

* Asset-based multipliers, where assets are totalled and value is determined.

* Rule of thumb, where industry benchmarks are used to establish the value (not recommended).

* Revenue-based multipliers – a percentage is applied to monthly or annual revenues (not recommended).

* Cash flow multiplier – where the business owner’s profit is added to the salary and realized perks, with a number of expenses deducted. This method is most commonly used to determine the value of a business.

While there are many documents and figures that can be proven to backup an owner’s claim, or not as the case may be, you need to take into account significant facts. You need to look at the reputation and age of the business, what level of competition you may expect, the existing legal structure, quality and physical location of the premises and last but by no means least, the difficulty in obtaining a new lease. When looking at a business for sale, take everything into account as you determine whether you should buy a business like this.

Richard Parker is the President and founder of the prestigious Diomo Corporation – The Business Buyer Resource Center. His celebrated materials, seminars and consulting have encouraged thousands of aspiring business buyers from around the World to pursue their dream to buy a business.

Posted by Guest Post | Filed Under **Business**, **eBusiness**, Development | Comments

Great Points For Buying A Profitable Business With Due Diligence

February 24, 2010

If you have not engaged in something like this before, buying business assets can be quite a daunting prospect. While it may be somewhat easier than establishing your own operation from scratch, understand that you are taking on, in many respects, the liabilities of somebody who is a complete stranger to you. To start off, you will be presented with many internal documents and will be able to look at the inner workings of the business for sale, but you must essentially be able to read between the lines and must not veer off-line, so a due diligence checklist is essential.

While a majority of business owners are enthusiastic and diligent people, have put a great deal of effort into their creation and would love nothing more than for the business to be continued and nurtured by a careful owner, you can never assume that this is the case. Please don’t think that this means you have to assume the worst in all cases, but it does unfortunately mean that you cannot take any statement at face value and you must look for proof in all cases to back up claims made. Always ensure that you employ the services of expert analysts as required when you buy a business, including accountants, financiers and business experts.

Primarily, you are now engaged in the process of setting value. Undoubtedly, each of the parties – the buyer and seller, will have a different interpretation of the value of the business. You will not come to an agreement or deal unless both parties are happy, but always bear in mind that you have to set the specifics under which a deal is likely to be made.

If you buy a business, a number of steps have to be taken as you go through your due diligence checklist and as you proceed, all the inner workings of the business will be revealed to you. You may hear references made to industry benchmarks, and they may be useful for information gathering but you should not rely on them. In the majority of cases you will always want to rely on the most recent data and while there are many documents to check, the financials are of paramount importance. Never be tempted to gloss over some of the less palatable financial figures, if a specific business asset appears to be of particular interest to you.

Some of the important factors to consider when assessing the value of a business for sale include the scope and level of services on offer and the potential for expansion, the age and established nature of the organization and, most certainly, its reputation in the marketplace. Get a good impression of the competition in the industry and in the local area and understand that location may be the most important asset of all. If the business you are considering is principally Internet-based, it may not even have a “bricks and mortar” location. While the physical location in this case may be of no consequence, make sure that you understand the importance of conducting a thorough “due diligence” process, come what may.

Time spent going through this process of revelation as you work your way through your due diligence checklist, will be well worthwhile. This entire process may take you weeks rather than days, especially if you need to analyse daily operations, client interaction and staff behaviour, for example. As such, you should never be overly anxious to go ahead to close a deal and should be prepared, rather, for the lengthy process you are likely to endure.

Posted by Guest Post | Filed Under **Business**, **Internet**, **Motivate**, **eBusiness**, Development, Everything Else | Comments

Clear Ideas On Benchmarks When Buying A Business For Sale

February 23, 2010

Don’t have any confusion about it, buying a business for sale is a multi-step process with each step being essential. You should never think about proceeding to the next position until the preceding step is complete and whatever you do, don’t be tempted to short-cut ever. You can view any time spent in preparation and in the revelation of facts and figures about the business to be well spent and as such you will be ensuring that no horror stories come back to haunt you when you take over.

A lot of information can be revealed before you even talk to a prospective seller. But hold on for just a second, are you really sure that you possess the level of enthusiasm you need for this type of business? Is the industry that you are looking at of particular interest to you and do you really want to get actively involved in everything that it represents? Be advised, that unless you want to be a completely “absentee” owner and are considering the many additional steps that you need to take if this is the case, you should be enthusiastic about the business that you are getting involved in.

When you are conducting your due diligence, make sure that you inspect all documentation:

* Employee records: including longevity, pay scales, behavior, and attendance.

* Equipment records: detailing the age, cost of replacement, any required inspections and associated results and details on maintenance investments.

* Inventory records: including turnover, condition, and re-saleability.

* Supplier contracts: are they transferable, do you have alternatives and is there goodwill?

* Property records: are any rental agreements transferable to you without any problem, as this can be particularly important.

* Asset-based multipliers, are where a total value of the assets is used to determine a value.

* Rule of thumb, where industry benchmarks are used to establish the value (not recommended).

* Revenue-based multipliers – a percentage is applied to monthly or annual revenues (not recommended).

While there are many documents and figures that can be proven to backup an owner’s claim, or not as the case may be, you need to take into account significant facts. You need to look at the reputation and age of the business, what level of competition you may expect, the existing legal structure, quality and physical location of the premises and last but by no means least, the difficulty in obtaining a new lease. When it comes to a business for sale, all will help you to determine whether you should buy a business like this, or not.

Posted by Guest Post | Filed Under **Business**, **Motivate**, **eBusiness**, Everything Else | Comments

Valuable Ideas For Buying A Real World Business For Sale

February 20, 2010

Do you see the prospect of buying an existing business for sale as being a leap in the dark, as this discourages many an enterprising individual? The entire concept can be very alien if you’ve never been involved in these types of transaction before. After all, it is not like buying a more tangible product like a vehicle or a house, where in many respects “what you see is what you get.” To value a business correctly, you need to look at a number of different intangibles as well as assets that need to be inspected and you also need to consider goodwill in many situations. In a service related business, goodwill and a maintainable client list can be critical elements, but the process of due diligence involves the revelation and exploration of numerous areas and documents.

It’s important to remember that there are two distinct and different viewpoints. The seller will be very clear about the business and how much it is worth to him or her. Expect to see a certain amount of natural enthusiasm, as a lot of hard work and dedication has undoubtedly been put into the business by the outgoing seller. While you should always maintain an element of respect for the sellers’ point of view, you must look at all documentation and evidence in the hard light of day and understand that it is up to you to determine if you should buy business interests according to the specific value you set.

After you decide you need to move forward and you have really determined whether you want to buy a business of interest, get ready for a very lengthy process. During the entire process you must maintain a level of common sense and good humor and be prepared to cultivate a strong level of communication with the seller.

This is where expert advisers will come into their own and if you have no real experience with this kind of business, its related market or niche, utilize proven resources and get as much help as you can. Don’t think that you can just hand off all the documentation and essentially the decision-making to these people, however, as the decision must be made, in the end, by you! The financial documents and all of the paperwork must be reviewed by you first to be sure that you have a great feeling initially before you hand them over for further processing by your experts.

Always be wary if some of the financial documents are either missing or incomplete, or are not balanced and reconciled correctly. Accounting traditions and precedents must be maintained at all times. Don’t be surprised if the seller will ask you to sign a non-compete and/or non-disclosure document before any financials are made available to you, because these financials are nevertheless the rock upon which the entire business is set.

No two businesses are alike and every operation is dynamic in its own right. There are so many different events that can come to bear to create such a variety of external influences and situations at any time. Expect to uncover some unusual facts and figures or surprises and remember that, while industry benchmarks are interesting, a lot of the information you discover here will be a function of real-world activities.

Posted by Guest Post | Filed Under **Business**, **Internet**, **Motivate**, **eBusiness**, Everything Else | Comments