Top 10 Important Factors to Consider When Buying a Business For Sale

When seeking out a new business acquisition, there is literally a minefield of choices on offer. Each and every business sector will have varying business of all sizes, shapes and types. On the surface of things, a large number of the businesses you initially find in your internet searches, magazine reviews and discussions with brokers may appear to be ideally suited to your needs. However, armed with a few important pieces of information and areas to scrutinize may reveal hidden secrets or problems with businesses for sale that will help you to avoid inquiring about inappropriate businesses and ultimately making a huge financial mistake!

By following some of these hard and fast rules, you should get a better idea if the businesses you are considering are bargains waiting to be snapped up or literally acquisitions that could leave you up to your neck in trouble:

1) Turnover, Profit and Loss

First and foremost, any business you buy is about making money and in an ideal world, a return on your investment. It never ceases to amaze me the number of businesses that submit inflated or wholly inaccurate sales, profit or loss figures on business for sale adverts. First off, look at the margins compared to the sales figures – do they add up? You don’t have to be a qualified accountant to realise that is sales (turnover) assignment writing service figures are reasonably good, yet net profit is very close to the same level then something isn’t right. The same can be said if the net profit levels are very low. It translates that the business costs a lot of money to run and cash-flow is very thin on the ground. Even if the gross profit is high, this doesn’t really tell you anything. Essentially you need to know if after all deductions the business is making money.

2) Over Inflated Valuations

So may owners of businesses believe their company to be worth way more than it actually is. In many cases this is down to an emotional attachment which is perfectly understandable but a huge hindrance. In most circumstances, business owners don’t take the news too well when they are told the actual real value by a professional valuer. There’s no solid rule but anyone who is asking for more than double the net profit value of their business is probably a little ambitious. So for example, if the next profit of a business is 40k, asking for anything above 80k would be pushing your luck. Most investors or buyers of businesses would ideally want to make back their money within two years so any figures that would exceed this time period shouldn’t be desirable to any purchaser.

3) Years Trading

I’ve lost count how many fledgling businesses have been put on the market for ridiculous prices. Without even a full years trading, the owners have calculated their asking price literally on a few months turnover without taking into account market fluctuations, varying expenditure, not to mention a lack of goodwill value or trading history. This sadly happens all the time. Don’t be fooled by misleading sales, profit and loss figures. Without any tangible length essay writer uae of trading time to call upon, no business owner can realistically calculate a reliable sales price without the help of an accountant or professional business valuer. If you are considering a business of this kind, ask how the figures they are presenting have been met. In most cases, I would advise you tread very carefully when considering buying a business with very little trading history. The chances are it isn’t working for the present owners and the likelihood is, it won’t work out for you either.

4) Due Diligence

If you are serious about a business you have selected for purchase, you must carry out detailed due diligence procedures into the full workings of the business, as well as the financials. Only at this stage will you gain a clearer insight into the day-to-day running of the business and the financial history. You’ll see exactly where money is made, spent and wasted. Remember, once you own the business you take over all liabilities as well as the benefits of the business so do your homework and don’t get caught out!

5) Assets

All businesses that have any tangible commodity should have some form of assets in place that add value. This could be in the form of property, equipment, intellectual property, contracts or even the staff. Whichever way you look at it, the business and it’s strengths are solely the product of it’s productivity and assets are usually a part of this. What is important to you is whether these assets are able to maintain their value or whether they will essay writer uae depreciate. Bricks and mortar for example, tend to appreciate in most circumstances. Equipment however, can depreciate quickly and require regular maintenance or repair. So it’s important to gauge a real understanding of what the businesses assets are and whether they hold any true value or not.

6) Liabilities

Just as assets can increase a businesses value, on the flip side liabilities can drag it down. It is vitally important to check that the business you are considering doesn’t have any notable liabilities in place. These can include debts or bank loans, vehicles or faulty machinery and even unproductive staff. If the liabilities are bound to increase the financial burden on the business in a notable way, consider your position carefully, This could be the sole reason that the business is being sold in the first place.

7) Disputes

Legal disputes or otherwise can be a massive headache for businesses. With ever increasing employment and business legislation in place in the modern world, it is not uncommon to find a business for sale that has one or more ongoing disputes which could hamper the future of the organisation. It would be extremely wise to ask the present owners of the business to declare any disputes whether past or present to determine if they are a stumbling block of any kind. If you take over the business, you have to take ever their disputes.

8) Competition

It goes without saying that any business wants as little competition as possible but it is very unrealistic or unlikely to expect this to be the case in present times. What you need to establish is whether the competitors will affect the business to the point where it could cause irreparable damage or if they are simply too insignificant to be concerned about. Sometimes competition is healthy and it keeps you as a business owner focuses and on your game. What you essentially need to recognise is whether any competitor will take too much of your market share to affect your turnover or whether the business you want to buy is strong enough to fend them off.

9) Employees

In the majority of cases, a business is judged by its workforce. If you have the opportunity to examine the workplace, speak to employees or at least observe the day-to-day workings of the business then do so. You want to know whether this business has a skilled and productive workforce. Anything less may be a concern.

It would also be very prudent to have sight of employment contracts or be made aware of any contracts that involve high salaries, bonuses or clauses that could be of a concern to you and the business.

10) Longevity

The bottom line is that any purchase you make is for the long game and your investment needs to be returned over a set period of time. In all cases, you need assurances that the business you seek to buy has the stability and productivity to maintain longevity to carry out and fulfill your long term strategy. Whether you intend to own and run the business only for a few years or for many decades, you have to weigh up all factors to ensure that your long term investment is a wise one.

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