How Should U Go About Buying A Business?

By Bhadresh Bundela

This should be a step-by-step sequential process. Here are the steps:
FIRST: You need to decide if you will be buying a business to provide yourself with a full-time job or if you are making the purchase as a part-time investment.
SECOND: You will need to thoroughly investigate the industry you are considering to conclude if this is really a business in which you can make a commitment.
THIRD: Attend industry meetings, talk to existing business owners, spend time at typical businesses and visit competitive locations to determine if your conclusions are shared by those who are already in the industry.
FOURTH: You need to decide whether you want to start a new business, buy a new business or buy an existing business.
AND FINALLY: Appraise your own experience, skills and background and decide if this business is a good fit for you.
• Are the economics of the business sound?
• Is there a reasonable predictability of future growth in earnings?
• Is there a sound financial foundation?
• Buying a business with these good characteristics but bad management can be an especially good opportunity.
• Don't overlook service businesses and e-commerce businesses.
• Review Session One: "How To Pick a Business"
Where do I find out about business opportunities for sale?
There are many sources for learning about business opportunities. The most popular are:
• Business opportunity brokers
• Classified newspaper ads
• Companies that supply or set up new locations
• Business opportunity trade shows
• A franchiser for any particular type of business
How do I determine my financial ability to buy a business:
Most people will not pay cash for a business, so some sort of financing will be involved. The equity position that will be required (the amount of cash necessary to put down) will determine the type and size of business you will be able to buy.
Depending on the business you select, you will need sufficient operating capital in addition to the down payment.
The source of the equity funds should be cash or liquid assets and not borrowed money.
Who can I ask for help in evaluating a business?
Remember that this is your decision and only you can decide whether a business is for you. Don't let any expert decide whether or not you should buy a business. Instead, ask them for specific advice on the various components of the business. Here are two examples why your attorney will be an important expert:
A. Have your attorney review the lease.
B. Your attorney should advise you as to whether you should purchase the stock or the assets of the business. If there are unpaid (and possibly unknown) liabilities including amounts owed to government agencies, you may be advised to purchase the assets rather than the stock.
The following experts can be helpful:
• Attorney
• Accountant
• Banker
• Business opportunity broker
• Equipment suppliers or vendors
• Other business owners
Once I have settled on a particular business, how do I determine how much the business is worth and how much should I offer to purchase it?
• This is the "due diligence" process. A buyer must obtain and examine the seller's financial statement and records. If the business is listed with a broker, the broker should have this information. The information you need should include the following:
o Profit and Loss records for the past 24-36 months
o Current Balance Sheet
o Cash deposit records
o Utility bills
o Supplier bills
• In making your offer, use all the information you have collected to determine what your net income will be. This will give you a basis for making an offer based on a capitalization rate (the desired return) you will want. For example, if a business will show an annual net of $50,000 and you have determined you want a 25% return of your investment (without considering financing) you would offer $200,000 for the business:

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