Critical Tips For Buying A Real World Business For Sale

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September 3, 2010

Do you see the prospect of buying an existing business for sale as being a leap in the dark, as this discourages many an enterprising individual? The entire concept can be very alien if you’ve never been involved in these types of transaction before. Most of us are used to engaging in transactions where we buy a tangible product like vehicles or houses and in these cases “what we see is what we get.” To value a business correctly, you need to look at a number of different intangibles as well as assets that need to be inspected and you also need to consider goodwill in many situations. 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. At this time, you had better have a good level of common sense and humor and be ready to communicate at length with the seller.

This is where expert advisers will come into their own and if you have no real experience with this kind of business, its related market or niche, utilize proven resources and get as much help as you can. This is not to say that you will simply hand off all the work to these advisers, barely looking at the documentation presented to you, as the decision-making must in the end be made by you and you alone. 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.

No two businesses are alike and every operation is dynamic in its own right. There are so many different events that can come to bear to create such a variety of external influences and situations at any time. 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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