Buying a business might be the most important decision in life, but many people treat it arrogantly. Most people would consult a professional on any other major transaction, but do not think of going to professionals for business purchases.
With that in mind, consider using a reputable trading broker. You can find a good broker in your area by simply calling or emailing your professional association, the IBBA or the International Association of Business Brokers. Or ask friends who own businesses if they have had a good or bad experience with a business broker in the area.
Business brokers who have earned the highest professional credential in their profession will have CBI after their name on business cards. This stands for Certified Trade Intermediary and assures the buyer that the broker has been properly trained and meets high ethical standards.
If you do not use a broker and represent yourself, you must first determine that the business is right for you. Is it something you would like to do? If so, check the financial health of the business.
After signing a standard nondisclosure agreement, the seller must be willing to show you their tax returns for the last three years and allow you the opportunity to visit your CPA. Make sure the business is making enough money to pay itself, pay a decent salary, and cover its own debt.
The next thing to do is determine the true value of the business and make sure it matches the owner’s asking price. After looking at the tax returns and a profit and loss statement, you should be able to determine the owner’s actual cash flow, which is net income plus discretionary expense that the owner benefits from, such as health insurance, a car. company or a company-owned cell phone. .
Take the cash flow and multiply it by two, then add the wholesale value of any inventory, accessories, furniture, and other possibilities. This will show you the value of the business itself. If there is real estate involved, hire an appraiser and add that figure. These general rules apply to most businesses, but when you talk to your banker or SBA representative, you may find some exceptions.
Organize financing. If there is real estate involved, this could be a 15-30 year loan. Without real estate, most lenders prefer seven-year loans.
Determine how much of the purchase price the owner is willing to bear as owner financing, and if the amount seems reasonable, your next and final step is to find an experienced business closing attorney. Ask him to review the contract carefully, and if you meet his approval, you are generally in good shape.