Here are the first 5 questions you should ask when considering the purchase of a business. If you are serious about buying a business, check out our Targeted Acquisition Program for business buyers.
1. How long has the business been in business?
A business with a long track record means there are good reasons for that business to be operating. It will be 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.
2. How long has the present owner owned the business?
The longer the present owner has owned the business, the more likely he or she has been successful. People don’t stay in business if they are not making money.
3. Why is the present owner selling?
If the owner of the business has been in business for 7 months, is 32 years old and wants to retire, you SHOULD be suspicious. The more valid the reason for sale, the more realistic the seller will be in considering your offer. However, do keep in mind that after 5 or 6 years (or more) sometimes people do get restless or “burned-out”.
Why the seller is selling is a very important question! This should be one of the first questions you ask!
4. How “clean” are the books and records of the business?
One of the most important things a buyer needs to investigate are the books and records of a business. The financial records of a business are a good indication of how well the business has been doing over the years. Keep in mind tax records are NOT designed to show a business in the best light: no one likes to pay more taxes than they have to, and owners of businesses are no different! Generally, tax records are a worst case scenario You need to be able to look at expenses and discover which ones are non-cash items, such as depreciation, business use of personal vehicles, etc. Other areas should be examined as well. For example, how important was that business trip to Las Vegas?
When in doubt, seek outside assistance. In the final analysis, the financial records of the business are an indicator of how the business performed in the PAST; what you do with the future is up to you!
5. Is the seller reporting all income?
It’s a question we get asked all the time… how do you determine if the seller is reporting all income? The simple answer is… you can’t! Not reporting income is against the law. You should only consider income the seller can show you. We all know, of course, especially in cash type businesses, there is the possibility the seller is not reporting all income for tax purposes.
This “underground economy” has been well documented and is in the billions of dollars. Many sellers will tell you how much they are “skimming”, but you should ignore their statements since there is no way to prove it. In determining whether a business is right for you, base the decision on figures you can trust!
Being in business for yourself can certainly be a daunting prospect. There are NO guarantees. At some point, after all your investigation is complete, you will still have to make that “leap of faith” and invest $50,000, $100,000, $500,000 or even more to buy the business.
Wouldn’t it make sense to have someone on your team who does it everyday? Give us a call at 732-389-0313 to learn exactly how we can make a HUGE difference in your odds of success as a business owner!
Any don’t worry about how much it’s going to cost you. Seriously. That’s the last thing you should be worried about.
We can give you plenty of references who will gladly tell you that when all is said and done “the money we saved them and the mistakes we saved them from making was worth far more than it cost”.
Are you ready to do it right? Contact us now!