BUY A BUSINESS - 5 THINGS YOU SHOULD LOOK FOR

The bottom line is...there are a lot of things you, the buyer, should consider as you evaluate potential businesses to purchase. The list is extensive.

In later emails, we will talk about more of these considerations in greater detail but for right now, let's focus on 5 things you should think about early on in your business search!

1. How long has the business been in business?

A business with a long track record means there are good reasons to be operating. It will be well known in the area, and people will be used to patronizing the business or using its services.?

The longer it has been in operation, generally, the better the business.

2. How long has the present owner owned the business?

The longer the present owner has been in business, the more likely he or she has been successful.?

People don’t stay in business if they are not making money.

3. Why is the present owner selling the business?

If the owner has been in business for six months, is 37 years old, and wants to retire, you should be suspicious. The more valid the reason for sale, the more realistic the seller will be in considering your offer.?

However, keep in mind that after five or six years or more, people do get restless, “burn-out” sets in, and people look for new challenges.?

Why the seller is selling is an important question – get the answer.

4. Why are the books and records so important?

The financial records are a good indication of how well the business has been doing over the years.?

Keep in mind that tax records are not designed to show the business in the best light; no one likes to pay more taxes than they have to, and business owners are no different. Generally, tax returns are a worst-case scenario.?

You need to be able to look at the expenses and discover which ones are non-cash items, such as depreciation and business use of homes and vehicles. How important was that business trip to Las Vegas? A professional business broker can point these items out to you.

Keep in mind that financial records are only history. There are no guarantees that they will or can be duplicated or repeated. All of your profits are future.?

In the final analysis, the financial records of the business are an indicator of what the business has done; what you do with its future is up to you.

5. How to determine if the seller is reporting all income?

The simple answer is – you can’t! Not reporting income is against the law but that doesn't stop some sellers from doing it.?

You should consider only the income that the seller can show you. We all know, of course, especially in cash-type businesses, that there is the possibility that the seller is not reporting all of his or her income for tax purposes.?

This “underground economy” has been well-documented and is in the billions of dollars. Many sellers will tell you about how much they are “skimming,” but you should ignore their statements since they have no way of proving these amounts.?

In determining whether a business is the right one for you, you should base the decision on the figures actually supplied to you by the seller.

Brian Stephens, MBA, CBI, CVA, CEPA...

Certified Business Intermediary

Member of: IBBA, BBF