Crucial Points For Buying A Real World Business For Sale
Some enterprising individuals are put off by the thought of buying an existing business for sale, as they see it as a veritable leap into the dark. 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.” A business valuation can be composed of several intangibles as well as inspectable assets and in many cases goodwill factors into the equation. 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.
Always remember that there are two different viewpoints here. 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.
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.
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. 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.
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. Accounting traditions and precedents must be maintained at all times. 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.
Each and every operation is different in its own right and no two businesses are the same. 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 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.
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