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kupspa (great handle) You are leaning?? Please define leaning?? towards buying a business
Tell us more. Who are you?? What is your background?? Where is the business (like what state)??
How soon will you decide and what will cause you to decide or "LEAN"??
Have you seen prior years tax returns?? Do you have an Accountant?? A Lawyer??
Is there a lease?? Will be taking over the lease?? How many employees??
Answer some of those questions and we can give you good answer.
That's a pretty loaded question. I have coordinated over 200 transactions, my personal due diligence list contains over 200 line items for review. If you do not have experience in acquisitions, your best bet is to work with a professional business broker- it will be money well spent.
Best of luck,
You've taken an excellent step asking for help with the hidden dangers of buying an existing business.
Like Greg, I, too, believe you should work with an experienced business broker. Some of the basics a business broker will assist you with are:
- collecting financial records from the sellers
- educate you how to determine a fair market offer
- negotiate the terms of sale including sale price, length of training, etc...
- coordinate the purchase of real estate (if necessary) or inform you of fair lease terms
They will assist you in other efforts, as well.
When buying a business don't let a seller's P&L's tell the whole story about the worth of their business. You need to take time interview the seller. Make sure that your broker is present at the meeting. You need to find out the following from the seller:
- how long they owned the business for
- the real reason they're selling the business
- the pros, cons, recent raises or demotions, and write-ups of all employees
- any un-written agreements they have with suppliers or customers
- marketing campaigns they've employed and what results they experienced
- any contracts they have that will extend beyond the transfer of ownership
- their opinion of their vendors (price competitiveness, attentiveness, friendliness, range and quality of product offering, etc...)
- if buying into a franchise, how effective and cooperative is corporate
- what issues have they had with the health department (verify their answer with the health department - the records are public)
There is a much longer list. Hopefully the list here gives you the idea that you need to perform an extensive interview (and sometimes over multiple meetings) with the seller and not simply review their numbers.
How much upside does the business have or has it reached its ceiling? Is there room to grow the business?
Additionally, you will want to poll the locals about their perceptions of the business. Without telling people that you are thinking about buying the business, ask their opinion of the place. Research if there are any reviews online. If the business has a negative public opinion, can you turn it around? If the business has an excellent reputation, do you have the ability to maintain the high level of quality and customer care?
If you are buying a restaurant / pizzeria, are you buying out the namesake? Meaning if the place is called Portello's Pizzeria, are you buying out the original owner whom the business was named after? What affect will this have on customer loyalty?
Hope this helps for a start.