Evaluating the Value of a Business Before You Buy: Part 3: Financial Records and Contracts



As a business buyer, the number that will be at the center of your attention throughout the business transaction is the purchase price. Just how much are you willing to pay for the business, and how does the seller arrive at their asking price? These are important considerations, and as you progress through the due diligence phase, you will be evaluating the value of the business.  You have already evaluated the inventory, the equipment, and furnishings. You will now take these evaluations and combine them with the financial records to get the final evaluation of the business.

Part 3: Financial Records and Contracts

You will need to examine financial statements, sales records, and tax returns for the last few years.

This is a great time to enlist the help of your business broker and possibly an accountant. Both will be familiar with determining what the records really show in terms of how the business has been doing.

Have your business broker determine the operating ratios of the business, as these ratios can be a good indicator to compare against industry standards.

Examine any and all contracts and agreements the business currently has. These include purchase agreements, leases, contractor agreements, and any other legal instruments.

The price of a business may change based on the economic climate or on the motivation of the seller, but in all reality the price of a business is what a buyer is willing to pay for it. Take a good look at the inventory (see Part 1: The Inventory) and other hard assets (see Part 2: Equipment and Furnishings), along with the financial records of the business before you head to the negotiation table.

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


Evaluating the Value of a Business Before You Buy: Part 2: Equipment and Furnishings



As a business buyer, the number that will be at the center of your attention throughout the business transaction is the purchase price. Just how much are you willing to pay for the business, and how does the seller arrive at their asking price? These are important considerations, and as you progress through the due diligence phase, you will be evaluating the value of the business.  You have already evaluated the inventory; now let’s take a look another hard asset, the equipment and furnishings.

Part 2: Equipment and Furnishings

These parts of the business are important in terms of value because they are considered hard assets, so you will need to know what furnishings, equipment, and office equipment is part of the deal.

For any equipment you will need the name and model number for each piece, the present condition, the value when purchased, the current value, and whether the equipment was leased or bought.

You will also need to consider what kinds of changes and improvements to the building will be needed in order to suit your business plan.  Find out what the seller invested in terms of maintenance and leasehold improvements so you will know what it will take to keep the facility in good condition.

Please see Part 1: The Inventory and Part 3: Financial Records and Contracts for a continuation of Evaluating the Value of a Business Before You Buy

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


Evaluating the Value of a Business Before You Buy: Part 1: The Inventory



As a business buyer, the number that will be at the center of your attention throughout the business transaction is the purchase price. Just how much are you willing to pay for the business, and how does the seller arrive at their asking price? These are important considerations, and as you progress through the due diligence phase, you will be evaluating the value of the business. The first part of your evaluation may be the inventory.

Part 1: The Inventory

What is the inventory? The inventory includes any materials and products that are used for resale or for client services.

It is very important that you personally, or a trusted and qualified representative, are present for and participate in any inventory examination. You will need to know the inventory status in order to give it a proper evaluation. You should also request the inventory counts from the end of the previous fiscal year.
You may need to have the inventory appraised if you are unable to properly appraise it yourself. The inventory counts as a hard asset, so you will need to know what dollar value to assign to it.

An important point to keep in mind is the value of the inventory is something that can be negotiated. If the inventory is incompatible with your target market, or in poor condition, these are points to be brought up during negotiations

Please see Part 2: Equipment and Furnishings and Part 3: Financial Records and Contracts for a continuation of Evaluating the Value of a Business Before You Buy

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


Buying a Business? Don’t Forget the Red Tape



You are well on your way to becoming a business owner. You have found a business that suits you, and are on the verge of taking over. Did you remember everything? Is all the paperwork that is needed complete? If you are working with a business broker, they will assist you with any and all licensing, permitting, zoning, and EPA concerns that are required. If you are completing the business transaction on your own, you will need to address these items before the close of the sale.

  1. Licensing and Permits. Almost all businesses will need specific licenses and permits in order to operate legally. The number and types of licenses and permits depends on the industry and location of the business. Use a business broker or your local government agency to determine what federal, state, and local licenses and permits your business will need.
  2. Zoning. Depending on what type of business you are planning to operate, you may encounter zoning requirements that pertain to your location. To be sure that you are abiding by the zoning laws for your business location, you will need to visit your local zoning office.
  3. The EPA. Does your business have property that you will be acquiring? If so, you will need to check the area’s environmental regulations. This can be done by contacting the EPA for information.

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


First Time Business Buyers: Why Hire a Business Broker?



Getting in touch with a business broker is often a good way to find businesses for sale, but because most business brokers work on commission, some prospective buyers shy away from hiring a broker.  They decide to go it alone, but for a first time buyer, this can be a big mistake.  The assistance you get from a business broker can be invaluable, especially if you have never been through the process before. Here are a few ways that a business broker can help you when buying your first business:

Your broker can help you find the right business for YOU.

Your broker should start by finding out what experience you have, what your goals are, and then use that information to help you decide on not only the right industry but the right business for you.  By going through this part of the process with a broker, you may discover that a business you never would have considered is actually perfect for achieving your goals.

A business broker does the negotiating for you.

Negotiations are a key part of the business buying process, and you will need and want the experience of your broker in this stage to ensure that you are getting what you need out of the deal. Brokers are also important during negotiations because they can act as a buffer between the buyer and seller, ensuring that the deal does not fall apart over minor disagreements.

Brokers know all about the paperwork.

As a first time buyer, it is unlikely that you know all of the current laws and regulations regarding the business you are about to buy.  It is also unlikely that you know how and where to get all of the necessary permits, licenses, forms, and financing you’ll need to take over the business after closing.  Your business broker is there to help you streamline your way through the red tape and ensure that you don’t miss a crucial step along the way.

For these reasons and more, as a first time business buyer it is critical that you use the services of a business broker.  It will save you time, energy, and money in the long run to have an expert with you every step of the way to business ownership.

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


Buy Existing or Start New? The Ultimate Business Buyer’s Question



When reading the statistics concerning the lifespan of start-up businesses, a prospective entrepreneur may begin to feel discouraged.  There is a general understanding that only about 20% of brand new businesses will make it to a six year anniversary.

Most new businesses fail in their first few years for a variety of reasons.  Many new business owners invest too much initially in the start-up of the business, not leaving enough funds for the time before they begin to turn a profit. Some new owners try to expand their businesses long before they should, leaving a huge financial stress on the business.

Whatever the reasons for failure, the number of brand-new businesses that just don’t make it may intimidate a prospective entrepreneur.  There is an option, however. A prospective entrepreneur can buy an established business.

For a first-time business owner, an established business can be very attractive.  An established business has already been through the unstable early years and has proven itself in the local market.  It can be part of the purchase negotiations that the former owner stay on for training purposes until the new owner is ready to run the business on their own. The business will typically come with an inventory, and the location will already be equipped with the necessary furnishings and equipment. Many existing businesses come with a rental agreement with the property owner already in place.

The purchase of an existing business gives the new entrepreneur the chance to go into business for themselves without having to start from scratch.  This is not to say that purchasing an existing business is without risk.  Any business venture comes with some degree of risk, and it is the job of a prospective buyer to weigh those risks against the benefits of business ownership.  If this is your first step on the road to becoming your own boss, then perhaps the option of purchasing an established business will be the right choice for you.

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


Starting a New Business: Important Considerations



When you decide to start a business from the ground up, it is a life-altering experience.  You need to be ready, and you need to be prepared.  What follows are some things you should know about starting a business.

 

Passion

This is by far the most important consideration you must make before you start a business.  Is this business something you can be passionate about, both now and in the future? Not every business owner is passionate about their work, but it certainly gives you higher chances of success in your endeavor if you love what you do and will persevere even when times are tough. Having little or no commitment to your business will absolutely lead to failure.

Preparation

There is probably no such thing as being too prepared when you are going into business for yourself.  You need to do your homework, but more importantly you need to be realistic with your plans.  By getting yourself familiar with your new market you will be better prepared for any unforeseen issues that arise.

Conduct background research on the industry you are trying to enter.  You will need to know about any existing products or services, your target audience, and your competitors.

Write yourself a detailed business plan.  Make sure you consider expenses like taxes, insurance, rent, and employee wages.  Know how much in sales you will need to break even.

Get a marketing plan together.  For some businesses, online marketing is enough.  Others may require both online and off-line components.  Have a strategy in place early on so you can begin attracting customers right away.

Support

When you start a new business, you will need support from your family and friends.  Those who are close to you will need to be on-board for your entrepreneurial journey, as business ownership is a big financial and personal commitment.

 

While this does not cover all aspects of starting a business, it hits on the key elements needed for any new business to thrive.  If you are well prepared, you will be setting yourself up for business ownership success.

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


Questions from Business Sellers: Confidentiality During the Business Sale



I would like to put my business up for sale, but I’m very concerned that if my employees find out they’ll all quit.  How do I keep this from happening?

Confidentiality is absolutely crucial when you are considering putting your business up for sale.  It is not only your staff discovering the potential sale that you need to be concerned about.  It can be devastating to your bottom line if your competitors, vendors and customers find out too.

Confidentiality needs to be in place throughout the business sale process.  It is not beyond the realm of possibility that a deal with a prospective buyer will fall through, and you will want protections in place that will keep that former buyer from disclosing your business status.  It may also happen that you decide not to sell after all.

How do you keep confidentiality in place?  Hire a business broker.

Only a broker can be an intermediary between you and potential buyers, and then only disclose your business to those who have signed the appropriate nondisclosure agreements.  If you have a competitor, you can even specify to your broker that those individuals not be told the business is for sale. It is your broker’s job to ensure confidentiality during the sale process, and their help with this aspect of the business transaction is essential.

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


How Do I Search For a Business to Buy?



You have decided to break out on your own, to become your own boss. Now it is time for the business search stage of your journey.  What kind of business will be right for you?  Here’s how to start:

Think about what industry you would like to work in.

Do some general research in the fields where you have some practical experience, and try to narrow the choice of industries where you might buy a business down to one or two.  Then search business listings online within these industries to get a general idea of what’s available.

Hire a business broker.

A business broker has access to business search sites that you may not be able to get, they know of businesses that are not yet on the market, and they can market you as a buyer to the business sellers they know.

Try to find out as much as you can about your desired industry.

In every sector, there are positives and negatives to business ownership.  It is important during the business search process to try and discover what these positives and negatives are so you are not surprised later on down the line.

No matter what industry you end up in, it is important to think about your goals when beginning your business search.  Let your business broker help you determine what businesses might be right for you, and then follow up by finding out everything you can about that particular type of business.  By starting your search this way, you are sure to end up with a business you love.

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com


First-Time Business Buyers: How Do I Get the Money to Buy a Business?



Do you need to be independently wealthy in order to buy a business?

No, all you need is an enterprising spirit.  In the current economic climate, it is rare for a business seller to come across a buyer who is offering all cash, and as such, many sellers are willing to finance part of the purchase price (for the right person) in order to get the deal done.

Other options you might consider could include a home equity loan, tapping into your 401(k) or IRA, or bringing in one or more partners.  Partners can hold an active role within the business, or they can simply be a friend or family member who acts as a passive investor.

Ask your business broker about the different financing options that might be available to you, like seller financing or getting funding through the SBA (Small Business Administration).  When thinking about financing, creativity is the key.

 

Michael Monnot

941.518.7138
Mike@infinitybusinessbrokers.com
1910 Park Meadows Drive, Suite 202
Fort Myers, FL 33907

http://www.infinitybusinessbrokers.com



Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com

12995 South Cleveland Avenue, Suite 249
Fort Myers, FL 33907




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