Critical Guidelines For Buying A Real World Business For Sale

Posted by ExternalContributor on May 7, 2010 in Other Views | 19 comments

Some enterprising individuals are put off by the thought of buying an existing business for sale, as they see it as a veritable leap into the dark. If they have never been involved in such a transaction before, it can seem to be very alien. 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.

It’s important to remember that there are two distinct and different viewpoints. The seller will have a clear indication of the worth that he or she places on the business. Expect to see a certain amount of natural enthusiasm, as a lot of hard work and dedication has undoubtedly been put into the business by the outgoing seller. 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.

It is highly recommended that you bring in expert advisers and utilize proven resources, especially if you have no real experience of running a business in this line, or niche. 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. Don’t be surprised if the seller will ask you to sign a non-compete and/or non-disclosure document before any financials are made available to you, because these financials are nevertheless the rock upon which the entire business is set.

Each and every operation is different in its own right and no two businesses are the same. There are so many different events that can come to bear to create such a variety of external influences and situations at any time. Expect to uncover some unusual facts and figures or surprises and remember that, while industry benchmarks are interesting, a lot of the information you discover here will be a function of real-world activities.

Richard Parker is the President and founder of the prestigious Diomo Corporation – The Business Buyer Resource Center. His celebrated materials, seminars and consulting have encouraged thousands of aspiring business buyers from around the World to pursue their dream to buy a business.