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.

Have your say and leave a comment, I personally review all of the comments on this site, and I would love to read yours ;)
Thanks so much!
Michelle

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