Checklist
Make a Buying a Business Checklist
After consulting with California business buyers for over eighteen years I highly encourage them to have a “buying a business checklist”, an important tool if they are serious about purchasing a company and not wasting a lot of time looking. Only 20% of all potential business buyers within California actually end up purchasing a small business. I have found that the failure to buy a business can be chalked up to not following the proven suggestions listed below.
The main items that should go into that checklist are:
1. Getting personally prepared: This includes putting together a buyer profile, including financial statement, description of what you want, and a resume summarizing your work experience. These documents demonstrate you are a “real” buyer, deserving of cooperation from sellers, business brokers, and agents. The information is personal, of course, and should only be shown to sellers who have a business you might want, or brokers whom you believe are honest and professional. Willingness to be upfront about your interests and capabilities will immediately separate you from the majority of people searching for business opportunities but, for one reason or another, will never complete a purchase. Another preparation strategy is to apply for an SBA-backed loan pre-qualification. Buyers who do this find out how much money they will have to work with, and can gain a competitive advantage over buyers who look for a business first, and go searching for money second.
2. Organizing a team: The purchaser who has a lawyer and accountant listed on his or her buying a business checklist will be in a position to move quickly once an interesting business is found. This means of course that the professionals are ready to be of service–the lawyer helping with language in the contracts and protecting you from problems, the accountant to help value a business and conduct due diligence. While other buyers interested in a particular business are trying to find the professional help they’ll need to proceed, the entrepreneur who has taken care of that step will be able to move more quickly than competing purchasers.
3. Cast a wide net. The more businesses you’re aware of, the better the chances of encountering just the right offering in a short period of time. That means working with more than one broker, answering for sale by owner ads, even posting a business wanted to buy request.
4. Respect the sellers’ requests for confidentiality. And be ready to sign a non-disclosure agreement. Showing that you are honest and “above board” will earn the cooperation of sellers. And without that, it’s nearly impossible to buy a business.5. Try for a win-win in negotiations with someone whose business you’d like to buy. The purchaser who wants to beat a seller in the price and terms aspects of a deal, might find he’s taken “round one” but then when extra help is needed–a bit longer to pay off the note or advice about some confusing aspect of running the company–the seller will be unwilling to accommodate.
6. Pay attention to the details when a transaction is in escrow. After all the work and excitement as you come to the end of the buying a business checklist, it’s a shame to lose a deal over some issue that might have been avoided had you noticed a developing problem and taken action right away. Make certain the escrow holder is competent and is doing everything that was promised.
Buying a small business is not rocket science, but it can be rather complicated and detailed. Make sure to be fully prepared, and that includes making up a buying a business checklist before you answer the first business for sale ad!
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The Business Ownership Checklist; What You Must Know Before Buying The Business
Before signing a contract to buy a business it is important for any buyer to do thorough due diligence, so that there are no unpleasant surprises later.
Buying a business is a huge commitment and should not be taken lightly. Business ventures involve time and money and both of these can be wasted (in large amounts), if the correct decisions are not made from day one. Also, it is not always easy to exit, or sell, a business at short notice, so the wrong decisions can have major consequences on family life and personal finances.
If you are thinking of buying a business, then get to know it inside and out, before you sign any purchase agreement. Here is where to start.
You might want to make some discreet inquiries before contacting the seller or broker representing the seller. But, do be careful who you talk to and what you say. You might want to ask questions of suppliers, competitors, neighboring business owners, customers, employees and even the owners of similar businesses in other cities. As I said be careful, because talking with employees and others could uncover some vital information.
It would pay to visit the business for you to judge the location and presentation – both inside and outside. This is a first (but not the last) visual inspection. You could do this openly, or anonymously, by pretending to be a customer. If the business is the type that does not lend itself to a visit, you might have to declare your hand and make an appointment with the seller (or broker) to inspect the business.
Nothing compares to seeing the business first-hand. The visit could save you a lot of wasted time and effort depending on what you uncover. You will be spending a lot of time in the business so you want to be comfortable owning it.
The following is a checklist you could use (or adapt) to record your initial reactions and impressions when visiting the premises for the first time. It is easy to be overwhelmed by what you see and go away thinking you have taken it all in, only to find you have forgotten critical things. Write down:
Time of visit Date of visit Length of visit Business Name Business Address Initial reaction to business Reason for sale How long the has business been going How long the current owner has been operating it Asking price and terms Asking price breakdown Inventory estimated value Method of calculation Initial reaction to price and terms Monthly sales Annual sales Monthly cash-flow (if available) Aspects you MOST LIKED about the business Aspects you LEAST LIKED about the business Changes you might make as owner Other comments
These questions are just a start to your due diligence process – but a good start.
All the best with your business venture. I wish you every success.
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