Ten Productive Suggestions for Individuals Contemplating Buying a Company

Every single year countless numbers of Americans cut the corporate umbilical cord and purchase their own business. Being a business owner is both tough and rewarding. An individual has to be low in uncertainty avoidance in order to make the leap. There are two kinds of people in the world, those that make money for others and those that make money for themselves. Some people are very happy with a nine-to-five career and collecting a regular paycheck. There is absolutely nothing wrong with that. Others, however, have a burning drive to be their own boss and to blaze their very own path. The later would have what we call the entrepreneurial spirit. This objective of this article is to offer some advice to all those thinking of making that jump.

Tip number 1, Buy an existing business: Sure, you can start a business from scratch, but your likelihood of failure is considerably increased. Buying a well established business with an existing client base and a proven cash flow is a lot less risky and your chances of "making it" are much higher.

Tip number 2, Decide what type of business to buy: It is crucial to buy something that you can get pleasure from owning at a location that you can live with. If you hate pizza, don't buy a pizza shop. Buy something that you will be happy owning. If you detest the city of Philadelphia, don't buy a business in the city of Philadelphia. My office gets phone calls all the time from buyers who have no concept of what they want to buy or where they want to buy. It seems as if they concentrate more on the cash flow number. While cash flow is definitely an important variable, it should not be the single most crucial issue in deciding to buy a business. Determine whether you want a service based, retail based or manufacturing based company.

Tip number 3, Determine whether you can afford to buy a business: Many people will not make the leap because they believe that buying a business is a financial impossibility for them. The truth is, typically you do need some money, but possibly not as much as you think. There are several sources for financing the purchase of a business. An SBA (Small Business Administration Loan) can usually be acquired if you have a good credit score, some relative experience in the category of business that you want to buy and 20% of the purchase price. The acquistion can also be funded with seller financing in the form of a promissory note or an installment purchase agreement. A acquistion can even be funded through your 401k or IRA.

Tip number 4, Surround yourself with professionals: Buying a business is potentially one of the most important events in a person's life. It is important to surround oneself with the correct experts. There are three important individuals that you really should use to aid you in buying a business; they are a business broker, an attorney and an accountant. Business brokers are instrumental with identifying businesses, negotiating the price, and getting everyone to the closing table. You really should pick an attorney that has experience with business transactions. Do not use your relative or close friend that happens to be an attorney if they specialize in anything other than transactional law. You don't need a powerful Philadelphia lawyer, but an attorney with experience of Asset Purchase Agreements is a must. A CPA can be instrumental in the due diligence phase of the acquistion. They will scour the books and records of the company to make sure the represented revenue and cash flow numbers are true. They can also educate you as to the tax implications for the allocation of the purchase price. Most major life events require the guidance of experts, acquiring a business is no different.

Tip number 5, Identifying the Business: Once you have identified what kind of business that you want to own and the area you want to be in, the next step is discovering a business that meets your criteria. There is no magic list of businesses that are closely held to the chest of businesses brokers. Typically, most businesses are advertised on the web on two main internet websites, www.bizbuysell.com and www.bizquest.com. While it may be true that some brokers don't publicly advertise some businesses because some Sellers want the utmost confidentiality, most brokers list their businesses for sale on those two internet sites. You or your broker should complete a search to discover businesses that fit your profile. Try to find businesses of the type that you favor that are throwing off enough cash flow to sustain your personal obligations and give you the ability to develop the business.

Tip number 6, Put together questions for the Seller. There are various critical questions that a potential buyer should ask every Seller. The first, why are you selling? This is the most common question of the initial meeting. Sellers decide to sell for a number of different motives. The best-case scenario is that they are retiring. Some are compelled out by partnership disputes or divorces. Others legitimately want to pursue other business options. Some business owners devote so much time and effort getting a business off the floor that they are plainly burnt out and want to cash in. A buyer should be leery of any business with a historical downtrend in revenues or cash flow. Sometime Sellers want to get out because they foresee a continued decline in their business or because they know of some impending event that will certainly harm their business. Whatever the reason, make certain it is a sensible one. Secondly, ask the Seller if they know of any reason that business will downtrend in the near future. Find out if there is a big competitor coming to the area or some regulation that is poised to impact the industry. Third, find out who the key staff are, what their roles are and if they would be likely to continue to work under a new owner. Fourth, ask about the immediate competition, who they are, where they are and what percentage of market share they have. Fifth, find out how long the owner is willing to remain on to aid with the transition. There are a lot of questions that a Buyer ought to pose to the Seller. The most important thing is being ready with questions.

Tip number 7, Make an Offer. You have located your perfect business and now you are prepared to make an offer. There are various key details to know before doing so. Do not sign an Asset Purchase Agreement at this point. Buyers want to sign something less committal such as an Offer to Purchase or a Letter of Intent. You want to make sure that your offer has a due diligence contingency, a financing contingency if applicable, a lease transfer contingency if appropriate, a liquor license transfer contingency if appropriate. You also want to make sure that your offer contains the crucial terms of the transaction so that the drafting of the Asset Purchase Agreement is more of a formality. Be cautious with making an offer that is too low. You do not want to insult the Seller and possibly kill the deal on the spot. Make a realistic offer and leave yourself some space to negotiate with the Seller.

Tip number 8, Carry out thorough Due Diligence: This is a Buyer's chance to seriously open up a business to confirm that it is as financially healthy as claimed. Most due diligence is done simply by looking at a Seller's tax returns and profit and loss statements. The represented revenues are easily discernable by merely looking at the tax returns. Things get more challenging when a buyer tries to vet the represented cash flow. If a business is being marketed at two million in revenues with a $500,000 cash flow, buyers want to make sure that the cash flow number is true. Most of the time, the purchase price is based on some multiple of cash flow. If you discover that the number is less than being represented you have reason to renegotiate the purchase price or cancel the transaction. Even though tax returns and profit and loss statements are excellent tools to conduct an initial due diligence, buyers should go past that by checking merchant account histories, internal revenue reports, bank accounts, etc. The typical due diligence period is somewhere between 30 to 60 days. This is the Buyer's time to make certain they are getting what they are paying for.

Tip number 9, The Closing: Once completing a thorough due diligence it will be time to proceed toward the closing. The closing ought to be a mere formality. All negotiations really should be done and all documents really should be ready in advance of the actual closing day. You don't want to be sitting at the closing table with a negotiating position. The parties may potentially have to sign a myriad of documents. The attorney and bankers should take charge of the closing. Buyers and Sellers normally sign away and collect their checks or keys. This should be an enjoyable day for both the Seller and the Buyer.

Tip number 10, Now you own it, do not make any drastic adjustments: The most significant mistake a new Buyer can make is making drastic adjustments to the business. If the business that you bought has a solid record of revenues and cash flow then there is no reason to make instantaneous significant adjustments to the business. You risk alienating clientele and your revenue stream. I have seen this take place time and time again with business buyers right here in the Philadelphia area. Try to make as modest of an impact on the face of the business as feasible. Of course new owners have their own ideas and want to make adjustments. If that is the circumstance, make the adjustments as subtle as feasible and over time. It is a entirely different circumstance if the buyer has obtained a distressed business. If that is the case, then the new Buyer has to make drastic adjustments to turn things around.

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If you would like to speak to a business broker about selling your business, please visit the author's Business Broker Web Site.