1.) Most Small Business owners have considered, or will consider, selling their business. 2.) Most prospective buyers do not follow through on the urge to buy a business because they find the prospect of buying a business too complicated. 3.) Although it would be impossible to point out every single item necessary when buying a business, the major requirements are: Deciding on the type(s) of business to buy, Finding the right business to buy, Determining the condition of the business that is being considered for purchase, Valuing and properly pricing the business, Financing the transaction. 4.) Occasionally, a business that is unique and very simple almost manages itself. But if the business is in a competitive field, management ability is probably the most important requirement for success. 5.) A business owner will need to have (or develop) the following important skills: Effectiveness with people, Business and financial management abilities, Experience in the industry. 6.) Buyers are usually tempted to consider value as a fair price for tangible items such as equipment and inventory. These factors are important, but they have value only to the extent that they contribute to future profits. So the true measure of a business value is its ability to produce profit. 7.) Before buying a small business, the prospective owner should ask the following questions: i) What am I buying (or selling)? Is it a business or a building full of equipment and inventory? ii) What return would I get if I invested my money elsewherein stocks, bonds, or other business opportunities? iii) What return should I get from an investment in this business? 8.) The results of the financial transactions of every company should be reflected in its periodic financial statements. These statements are extremely important in buying a small business. They were prepared for the seller, of course, and their contents are available to him. But the buyer, too, should be aware during the early stages of a buy-sell transaction of the information contained in financial statements. 9.) The balance sheet is a statement of the financial position of the business at a given moment in time. 10.) The income statement is a summary of the revenue and expenses of the business during a specified period of time. 11.) If the sellers financial statements are prepared by an independent accountant, the statements should show whether they were (1) prepared after an audit of the sellers accounts, or (2) prepared from the sellers records without verification by audit. 12.) Most small companies do not have their records audited annually, but without an audit it is almost impossible to tell how accurate the statements really are. 13.) If a buyer wants to invest money in a business that is being sold, he should be concerned about receiving a fair return on his investment. Many businesses can make a profit for a short time (1 to 5 years); not so many operate profitably over a longer period of time. 14.) The buyer of a small business should try to determine the risk factor of the new business, though this is difficult at best and in many cases impossible. 15.) The seller of a business must furnish a list of his creditors to the buyer and the buyer should give notice to the creditors of the pending sale. Not doing so can result in attachment of the property after the sale, by creditors of the seller and voiding of the transaction. 16.) A buyer generally has two options when financing the purchase of a business: Equity Capital is cash, whether or not it is supplied by the buyer (e.g. from friends, family, venture capital, etc.) Debt capital is borrowed money and may be from a bank or the seller him/herself (see $0-Down Strategies). 17.) In determining how much debt to incur, the buyer should consider how much money he/she has and how much he/she is willing to invest in the business. The less equity from the buyer, the more debt capital is needed. 18.) In figuring out how much debt can be afforded, the prospective buyer should consider the business ability to keep up principal and interest payments. 19.) Goodwill, when it exists, is a valuable asset. It may result from a good reputation, a convenient location, efficient and courteous treatment of customers, or other causes. Rudy LeCorps rlecor@rglpublishing.com http://rglpublishing.com |
