Buying Tutorial

Buying a business can be a complicated procedure, from finding the right one to working out all the details required for a smooth transfer of ownership.

While there is no such thing as the perfect business, a Business Broker knows the importance of finding one that fits your needs, talents, skills and lifestyle.

A Business Broker has many different types of businesses for you to consider and the knowledge and experience to walk you through the entire process.

Below you will find some helpful information as you consider whether buying a business is right for you.

Going into business for yourself is a big step, one that can be full of apprehension and even fear.

Almost 90 percent of all those who purchase a small business have never owned a business. Most of them bought a business that was different than what they had been looking for. These buyers had the opportunity to explore the marketplace and subsequently found a business more to their liking. In most cases, the seller financed the sale.

Most buyers are seeking to obtain the following when considering the purchase of a business:

As you begin your search, keep in mind that running your own business is more than a job; it is a lifestyle change. In most cases, it is a very big lifestyle change.

Usually, you will be working longer hours, making all of the decisions, and, as the expression goes, you will be the chief cook and bottle washer. In other words, you will be doing all of the work from running the business to, in many cases, sweeping the floor and changing the light bulbs.

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.

The longer the present owner has been in business, the more likely he or she has been successful. People do not stay in business if they are not making money.

Why the seller is selling is an important question. The more valid the reason for sale, the more realistic the seller will be in considering your offer.

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 home and vehicles. A professional Business Broker can point these items out to you.

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.

The simple answer is that you cannot. Not reporting income is against the law.

You should consider only the income that the seller can show you. Many sellers may talk about unreported income, but buyers should ignore statements that cannot be proven.

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

Being in business for yourself can be a daunting prospect. There are no guarantees. At some point, after all of your investigation is completed, you will still have to make the leap of faith that is necessary to proceed with the purchase of the business.

You will have to work hard, perhaps even tighten your belt a little, and perform many different jobs to be successful in your own business.

But if running your own show, making your own decisions, not having to worry about job security, and being on your own are important, then owning a business may be for you.

Too many prospective buyers want to know the asking price first and then ask how much money they can make. These are the wrong questions to ask initially.

You need to know how much cash the seller requires as a down payment. No matter how good the numbers are, there is no point in looking at a business if the seller wants three times as much cash as you are willing to invest.

The actual amount of money a business earns is usually much more than just the bottom line. A smart approach is to get more information on the business, and even make a visit, before ruling it out or getting too involved in the numbers.

There is no right or wrong way to buy a business. However, it is important that you get answers to all of your questions and that you have all the information necessary to make an informed decision.

Over the years, the following steps have become efficient and practical for buyers considering a business acquisition.

Get preliminary information on price, terms, income, cash flow, and general location. There is no point in continuing the buying process if the amount of cash necessary to buy the business is more than you are willing to invest.

At this point, do not worry about the full price. The key factor is the amount of cash that is necessary to buy the business. The great majority of business purchases are financed by the seller.

The business also has to be able to meet your basic financial needs. You should expect a business to improve under your ownership, but you have to be able to meet your living expenses as well as the debt service of the business.

Visit the business to see if you like the location and the look of the business, both inside and outside. This is a visual inspection. Pretend you are a customer.

It is not time yet to talk to the owner. If the business is the type that does not lend itself to a visit, make an appointment with the seller to inspect the business, or have the seller representative schedule a visit.

There is no point in going any further if you do not like the physical location of the business or the appearance of it.

If you like the business so far, it is time to get your questions answered. Ask about rent, lease terms, sales history, and whether the seller can support the figures you have been told.

Now is not the time to have the seller's books and records completely checked. There will be plenty of time to review those issues during due diligence.

This is the time to get answers that affect whether you may want to own and operate this particular business.

If your basic questions have been answered and you want to proceed, it is time to make an offer, subject to verification of all the information you have received.

The main purpose in making an offer is to see if the seller will accept your terms, price, and structure of the sale itself.

It does not make sense to employ outside advisors and go through the time and expense of due diligence unless you can come to financial terms with the seller.

At this point, you hopefully have arrived at a meeting of minds with the seller and are ready to begin removing contingencies through due diligence.

Unless you are completely familiar with the type of business purchased, it can be beneficial to include an agreement that the seller will stay with you for a sufficient length of time to teach you the business.

Thirty days is often fair, with perhaps another 30 to 60 days of telephone consultation. If you want the seller to stay longer, it may be best to offer a consulting fee.

The next step to buying your own business is to make sure it is the right move for you and your family. Owning one's own business is still very much the great American dream, but it is not for everybody.

Buyers should be honest about motivation, timeline, financial risk, family support, open-mindedness, expectations, and the ability to make the leap of faith required to buy a business.

Jump International encourages buyers to review the Buyer FAQ for more answers about buying an existing business, business pricing, business broker support, attorney involvement, and what happens when a buyer finds a business they want to purchase.