If you have the necessary knowledge on how to buy a business then do so. It can be a rewarding experience and great opportunity to get into business without having to start up your own. You’ll be skipping a lot of planning and start up phases of creating a new company from scratch.
Choosing a Business
In terms of businesses for sale, there are a lot of them. Many times some of them aren’t great to put it frankly. In order to not get a bad deal, you’ve got to be on your toes when choosing to buy a new business. There are some things you can ask and research about when choosing a business.
One of the first points to ask is why the business is for sale in the first place. Don’t just take the business owner’s word for it, make sure to do some research of your own. A lot of people may be retiring, becoming ill, or just want to cash out of whatever they’re doing. This is fine, but more deep-seated reasons could surface.
You wouldn’t want to invest in a new business because the owner knows a big retailer is moving into town and about to threaten their business. If you’re at a physical location, check out what other tenants feel, for example if you’re at a mall.
Underlying Business Deal
Figure out what is included in the asking price of the business. Knowing how the valuate the company is important. Being able to figure out what is for sale and the method for valuation is important in negotiations and deciding if the price is worth it. Someone selling a business will have a spec sheet that lists the assets and estimated value of the company.
It’s important to look at the details and ask questions if you don’t understand anything about the valuation. Sellers may inflate their value based on intangible assets that may make the company seem to be worth more than it is. Study the businesses past performance, as this is a clear indicator of how it may perform in the future. You need to know how well it can do and if it can turn a profit.
Making the Deal
One of the ways to study the business is to look at its past three years of financial statements. If you’re not versed to what all of this means, hire someone to do this for you. A professional accountant or financial based occupation will be able to do the trick.
Going through the buying process doesn’t have to be done alone or without the assistance of people who know how to broker such a deal. If you’re ever in the business of selling or buying a business, http://businessbrokersaustin.com/ can be the one stop fix for that. They offer free consultations and a guide through getting through a buying process, if used as a broker they’ll guide you every step of the way.
Validity of Business Statements
If you have a brokerage or accountant assisting you, they know how to accurately look at and explain in depth the files they receive. A full auditor’s report would be able to review what business has been conducted with full checks and other regulatory issues satisfied. If you don’t like what’s on the papers or want another trusted source, see if you can get right to the business records or perform your own business audit.
Business valuation is more complicated and you should use several methods to determine its best valuation at the end. Look at the book value, modified book value, replacement value, and liquidation value on the business as a whole and various assets.
You want to know how a seller arrived at their original price for valuation and see if that fits in with your own detailed analysis. This is when striking deals comes into play and seeing if you can get a deal.
If you’re into the negotiating process and have built up a repertoire with the company, see if you could watch it in action for a couple days. If you’re a serious buyer with an offer, then they may allow you to do so.
Closing the Deal
Once all valuation has been put into place make an offer if you haven’t done so already. Once negotiation has finished and an agreed upon price is made, it’s time to get this in a sales agreement. Specify the deal into a contract of terms with a lawyer. After careful steps of deliberation from the start to finish, you have yourself a new business.
Greg Knox has 18 years of experience in the financial industry. In addition to his investment banking and private equity experience, he previously worked at one of the largest hedge funds in the world at Campbell & Company, and in financial institutions such as T. Rowe Price, Deutsche Bank, and Wachovia Securities. Before founding CGK, he spent 5 years as a business broker helping local Austin business owners in mergers and acquisitions at VR Mergers & Acquisitions, where he finished in the top 10 associates across their worldwide network in 2011, 2012, and 2013. Greg holds a Bachelor of Arts degree in Business Administration from Franklin & Marshall College and an MBA from Cornell University.