-What Should You Know when Buying a Business-

A client recently told me he wants to buy a business. Here are some of the
basic steps involved - 

• A first step is to insure that your financials are in order. Check your credit scores (and credit report). Get your personal financial statement current. Determine what 'blood" (cash down payment) you are able to afford.

• Speak with a life coach about your direction.

• What type of business do you want to buy? Retail , service business, wholesaler, professional service, etc.. What is your passion? Can this passion be turned into a fiscally sound venture? (Hint: a former corporate professional probably should not buy a sub shop because he likes making sandwiches..)

• Be ready to change your current lifestyle (oftentimes, drastically).

• Once you find the existing business you would like to purchase, find out from the current owner how much they want for the business.

• Do they also own the property that the business is operating from?  If so, you have two separate transactions: the purchase of the property and the purchase of the business. It is always best to separate these two items.

• Next, agree to sign a non-disclosure agreement. Now you are ready to ask for financials from the current owner.

• If the current owner balks at your request for full disclosure, then he is probably just testing the waters and is not really ready to sell. Never consider a business if the current owner can not validate his profit and sales claims

• If the business owner is ready, have a summary market valuation done by an unbiased neutral 3rd party.Not the business owner’s valuation OR the commissioned business broker’s estimate. A business always has an intrinsic value (positive or negative) that is not on a balance sheet.

• Ask a lot of questions -Will the current owner remain on-board until you "know the ropes" ? Will the manager stay with the business? , etc...

• Assemble your team- Attorney, accountant and business finance consultant (for starters)

• Establish a buyer's business plan. Determine the business structure. Begin the search for funding.

• A business, by definition, is a risky proposition. Traditional banks usually are hesitant to loan to a business owner without a proven track record.Ask if the current owner can offer partial seller-financing. Over 90 % of small business acquisitions today have a seller-financed component.

• When you are ready for actual funding, use your business finance consultant team member.  

• You may face few options if you go directly to a lender without the assistance of a finance consultant. A prime duty (obligation) of a consultant is to find the funding product(s) that best match the needs of the unique prospective business owner.A prospective business owner will save substantially more time, hassles, and money in rates, terms and fees on a business purchase than it will cost in consulting fees.

• Naturally, these steps are just the first few of many required. Buying a business is always an exciting and fun trip. If you are thinking about leaving the employed masses... Bon Voyage!