-Important Considerations Before Starting the Business Buying Process

Sell Business
  • Small Business Financials – If you have a corporate background you must understand the motivation behind small business financials. A small business owner’s motivation is to pay less tax and frequently personal expenses are being reported. It is the opposite motivation of a large corporation or public company that has to report to shareholders and investors and bankers.
  • Chief Bottle Washer – Realize that you may call yourself the owner, CEO, boss or president but you will also be the janitor, stocker, maintenance man, customer service agent and your expectations of the job duties may need to come down to reality. You can have the title but the job duties may be something else entirely. If you can’t see yourself changing light bulbs or cleaning toilets or making deliveries then you may not be happy.
  • The Leap of Faith – Everything looks as disclosed or portrayed but there will come a point after you have performed due diligence on the target business that there is still a doubt in your mind. That is the moment when you have to take the leap of faith. There are no sure things and there is no way to eliminate all of the risk.
  • Analysis Paralysis – You have probably heard of the term “analysis paralysis”? There is only so much due diligence you can perform. Have a due diligence plan that involves you and your team. Set the scope of work for yourself, accountant and lawyer. Hold everyone including yourself accountable for the process and complete it and move to the next step.
  • Good Fit – Make sure you have clearly thought through how your skill set, attitudes, talents and weaknesses align themselves with the company. Can you envision yourself doing what the seller does on a daily basis? Have you interviewed the seller and do you clearly understand what his day to day activities and duties are? This may be the most important aspect in the due diligence process.
  • Working Capital – The reason most businesses fail is insufficient working capital. After you have done your own working capital analysis compare it to the broker’s opinion of working capital requirements and the seller’s.
  • Valuation – Understand that if you purchase a business that has many attributes present you will pay a higher multiple than a business that may be distressed or has a lack of attributes. Define what you are looking for. Is it your intention to purchase a business in trouble or is it your intention to purchase a business that is performing well?
  • Financing Strategy – Fully understand how you will be financing the acquisition. Will there be a lender involved? Have you prequalified with them? Will you be looking to the seller for financing? Do not assume that the seller will provide financing. Talk with the broker and or the seller about this.

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