Where Do I Look to Find a Business?
WHY IS THE BUSINESS FOR SALE? It is not unusual to enter a potential buy/sell situation with a great deal of warranted suspicion. Sellers have a number of different reasons for selling their businesses including retirement, illness, burnout, divorce, separation, a better offer, changes in family life, a new job offer, non-profitability, college tuition, or other economic conditions that may require or even encourage the sale. The real reason may or may not be what is purported and is often very difficult, and sometimes impossible to determine. Although you are entitled to display a certain degree of suspicion about the sellers real reason for selling the business, spend more time verifying and researching its past, present and future performances.
WHAT KIND OF REPUTATION DOES THE BUSINESS HAVE? The reputation and integrity of the company's customers, vendors and product lines is an integral part of company goodwill. It is an important characteristic of the enterprise and often is the driving factor in arriving at the price of the business, therefore it may become the most significant asset being purchased. If the present owner has an excellent business reputation, you should determine whether that goodwill is based on personal relationships built up between the owner and customers (that will not be easy to transfer to you). This is particularly important if the business relies heavily on a few key customers or suppliers with whom the owner has enjoyed a very favorable business arrangement. Those arrangements could evaporate when you attempt to take over and you could wind up paying for a handful of air.
HOW PROFITABLE IS THE BUSINESS ? Unless you have some very good reasons to believe you can run the business more profitable than the current owner, stay away from a money-losing business or one that does not produce a satisfactory profit. It is absolutely important to determine what the business has actually earned during the last few years. Even if the owner has audited financial statements, (which is very unlikely for a small business) you must perform your own due diligence. Your responsibility, hopefully with the help of a financial advisor, accountant or experienced business broker, will be to un-paint the carefully painted picture, finding out everything about the business. In most cases, the business owner will be very accommodating to the buyer describing all the perks and profits he is taking out of the business. Verify, verify, verify.