After you have made the decision to purchase a business, much of your future success will depend on the actions you take before you ever complete the transaction. While purchasing an existing business has many advantages over starting a new business from the ground-up, those benefits are only advantageous when you understand how to properly evaluate a business for possible purchase.

There are a number of factors that you should take into consideration when evaluating a business for possible purchase. Just as it’s never a good idea to fall in love with a home before the inspector finishes his final report, it’s also never a good idea to imagine yourself operating a business before you have taken the time to evaluate it properly.

Begin by evaluating the location. As the old cliché in the real estate industry goes; location really is everything. Many businesses, while seemingly possessing all of the other factors for certain success, have failed simply because of location.

Consider the specific needs of that business and industry as well as zoning requirements, the overall safety of the area, the population density and customer base as well as the nature of surrounding competition. When considering location, it is also important that you analyze traffic patterns and accessibility as well as parking conditions. Finally, don’t forget to factor in the separate cost of the location.

No comprehensive evaluation would be complete without taking into consideration the physical assets of the business such as equipment, fixtures and existing inventory. Does everything appear to be in good condition or will numerous items need serious repair once the purchase is complete? What about the inventory? Is it well stocked or will you need to replenish or make changes?

Make sure you spend a good bit of time analyzing the products and services offered by the business. If you are not completely familiar with this industry, this aspect of the evaluation will prove to be even more critical.

Factor in existing relationships with suppliers and distributors while analyzing the existing customer base and loyalty level. Are the products and services already offered strong enough to withstand a change in ownership? Will the customers continue to support the business or will you need to begin building from scratch?

While your purchase of the business certainly doesn’t include the existing personnel, in most circumstances it is anticipated that you will retain the existing employees-at least for awhile.

Take the time to find out whether you can work with the personnel already on staff or if that area of the business may need overhauling as well. Ask to review management records and also be sure to take a step back and evaluate how customers respond to existing staff members. Their response can speak volumes.

How Do You Analyze the Financials of the Company you are Looking to Purchase?

The first rule of thumb that you must understand when analyzing the financials of any business that you are considering for purchase is that you must look evaluate the financial records for at least the last five years. Minimum.

Anyone can cook the books and make it appear that they are showing a profit when in fact they could be drowning in a sea of debt and looking to cast their albatross off to an unsuspecting buyer.

The critical point here is to thoroughly investigate all records to determine the bottom line-are profits increasing or decreasing and by how much? In order to do this you will need to evaluate the financial records from several different perspectives. Do not simply rely on the information provided to you by the seller. Go in armed with an arsenal of your own questions and make sure you have cleared enough time in your schedule to complete a thorough investigation.

Always make sure that you ask to see the operating expenses. This will include the amounts of money going in as well as out of the business. Now, unless you are extremely familiar with the industry and know without a doubt how much these numbers should amount to; it’s always a good idea to compare these expenses to those of similar businesses.

A thorough financial review will include scrutiny of the following documents: past income statements, cash flow statements, balance sheets, articles of incorporation, past tax returns, statements regarding projected financials and any liabilities documentation. Also ask for documentation on any past or pending litigation as well as copies for all major contracts.

You should also take the time to have a thorough credit report run on the business. This step can help you to determine exactly where the company stands and also perform a check-up on the information that has been provided to you by the seller. If everything looks good on paper, but the credit report comes back with a seriously low score; this can be a strong indication that the information you have been given has been cooked.

Finally, don’t try to go it on your own. The most experienced and successful business people in the world will tell you that they rely on the advice of experienced accountants and attorneys when considering the purchase of a business.

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The moment you become interested in purchasing a business, you need to become engaged in practicing due diligence. While many prospective business owners view the practice of due diligence as only conducting a financial review of an existing business that has caught their interest, true due diligence encompasses a much broader spectrum than mere financial considerations.

In its entirely, practicing due diligence means that you will need request copies of all documentation relating to the business in question. This means that you will need to review copies of all contracts and loan agreements as well as leases, inventory records, management reports, sales and facility maintenance records, reports for both accounts receivable and payable, payroll and benefits records, marketing materials, customer records and any records regarding business assets.

You should also take the time to learn about any litigation the business has experienced in the past or may be experiencing at the current time. The same is true regarding any tax audits or insurance disputes.

Additionally, just as due diligence requires that you spend some time thoroughly investigating the financials of the company you are considering for purchase; it’s also an excellent idea to make sure that you investigate facilities. You might even find that it’s wise to retain the services of an experienced inspector in order to determine whether there may be problems in the facility that could create issues later on.

Finally, you should also ensure that you exercise due diligence in uncovering any matters related to marketing and the overall industry of the business you are considering. This type of investigation will include reviewing the size of the market as well as current competition. You also need to spend some time reviewing the primary vendors and supplies in an effort to understand how these factors impact the dynamics of the business.

By taking the time to do your homework, and practice due diligence, you can better protect your future financial investment and make sure that you purchase a successful business instead of acquiring a profit draining lemon.

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The idea of beginning a search to look for a business for sale may sound exciting, but in reality it can be much more difficult than you might imagine. While there are certainly plenty of businesses for sale on the market today, one quick look will reveal the fact that the marketed is littered with deals that are questionable and some that are downright ludicrous.

The methods that you use to find a business for sale will primarily depend on whether you have a strong need for confidentiality or not. If you are in a position to look openly for a business for sale, you have far more options available to you. On the other hand, if your search for a business must be more circumspect you will need to be a bit more creative in regards to how you go about it.

As anyone who is experienced in looking for a job will tell you, the best place to start is within your own circle of friends, family members and acquaintances. The same is true when you are looking for a business to purchase. Many times this can be the quickest and easiest way to locate businesses that are on the market. One word of caution; however, this route should only be used if you are willing to be open about your interest in purchasing a business.

The classifieds are a traditional place to browse when looking for a business for sale; however, you must be aware that this type of search is littered with cons, scams and deals that are in general nothing but pure junk. Since there are some genuine gems mixed in with the other not so good deals, you shouldn’t ignore this area all together. Simply be cautious and make sure that you put your investigative skills to good use.

Another area that can prove fruitful of course is trade associations. Since it is in the best interest of the trade associations for the businesses among their membership to succeed and flourish, they will naturally be quite open and willing to help you locate businesses that are looking for new ownership.

The Internet is rife with businesses for sale, but much like classified ads, you must exercise due caution when considering leads for business for sale on the Internet. This doesn’t mean that there aren’t some good deals among them; just don’t allow yourself to get carried away before you fully investigate any offer.

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The prospect of owning and operating your own business can be a heady experience; however, the reality of becoming an entrepreneur quickly reveals numerous decisions that must be made before your dreams can become a reality. One of the first decisions you will need to make will be in regards to whether it would be better to buy an existing business or begin an entirely new one. While both avenues have their advantages and disadvantages, there is much to be said for the idea of buying an existing business.

As surprising as it may sound, purchasing an existing business can be less expensive than opening a new business in many regards. Even if you are not constructing a building from the ground-up to house your new enterprise, many times there are costs associated with opening a new business that simply cannot be anticipated from the outset. When you opt to purchase a business already in existence, you do so with the firm knowledge of the amount of money you will need to invest in order to get in on the ground floor. While you can always anticipate additional costs for other expenses, at least you have a firm foundation on which to start for accounting purposes when you purchase a business.

One of the most frightening aspects regarding the start-up of any new business is the fact that you will need to start from scratch in terms of customers, vendors, employees, equipment and systems. This spells additional investments of not only money but time as well. A primary benefit to purchasing a business that has a history is that you will be able to take advantage of an infrastructure that is already in place. Even if the company has not had a glowing success record in the past, you can save tremendous time and money by not being forced to start from the ground up.

Finally; if you decide to go with the route of purchasing a franchise you may well find that the presence of a support team that is already in place can be invaluable. Starting a brand new business is unfamiliar territory for many people, but the option of purchasing a franchise gives you the benefit of the knowledge and experience of the franchise team standing behind you. Because it is their name on your business, they are invested from the very beginning in your success.

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Part of a being an adult is adequately managing your finances and this is especially true for business owners. Unlike the federal government, individuals and businesses live on budgets and need to stick to them to avoid unpleasant situations like bankruptcy. A few basic rules to follow are:

1. Live below your means. If you make $100,000 a year, live as though you made $50,000. Don’t build up unnecessary debt. A business owner needs to be ready to handle unexpected emergencies, and that is easier to do if you are fast and maneuverable, with little debt.

2. If you have debt, pay it off as quickly as possible.

3. Build up an emergency cash fund. Try to set aside enough cash for you to live and the business to operate for a minimum of three months, and six months is much better.

4. Take advantage of legal tax loopholes. If you can save money by leasing a vehicle rather than purchasing one, then lease. If the opposite is true, then purchase. Do what saves you the most money, paying particular attention to taxes.

5. Pay credit cards off in full at the end of each month. Credit card interest is high and cash eat you alive if you allow it.

6. Take advantage of pre-pay discounts. For instance, if you advertise in the newspaper and they offer a ten percent discount for prepaying a year’s worth of advertising, realize that ten percent is better interest than the bank would pay you and pay for a year in advance to get the discount.

7. Buy office supplies and other consumables in bulk. You’ll save five to ten percent on the total.

8. If you fly for business, save frequent flier miles and use them later for free airline tickets, for items you can give to the sales staff as motivational tools and contest prizes, or give them to charity organizations for the tax write off.

9. And finally, think lean. Remember that Sam Walton, the richest man in America, drove a ten-year-old pick up truck when he could afford the nicest Rolls Royce. Think lean, be frugal, and be successful.

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Creating a financial statement for a small business isn’t difficult, but it does require accuracy and a flair for numbers. What is a financial statement? It is a document that accurately details all financial data of your business. This includes all income from all sources. Also all expenses, all assets and all liabilities. It is a reflection of your financial house, with the result being a method of keeping your house in order.

The financial statement will include all assets. This means all cash on hand, cash in the bank checking account, savings, account, petty cash drawer, etc. Also investments such as the value of equity stocks, bonds, treasury notes, mutual funds, insurance policies, gold and precious metals, and any other investments you might have. This will even include estimated value of collectibles. Then add in assets like cars trucks and other vehicles, real estate, furniture, fixtures, jewelry, and any other physical item of value. Also include loans – money that people owe you.

In the second column you have your liabilities. Here you list money owed, including salaries of employees, outstanding loans, unpaid bills, the mortgage on the real estate, credit card balances, and any other type of liability you may have.

Naturally your hope is that the left-hand column of assets will, when added up, be greater than the right hand column of liabilities. This is the simplest form of financial statement, and one you can create yourself. This will also serve as a basis for discussion with a CPA if he is creating a more detailed financial statement for you. In other words, a place to start.

There are many good books available on creating financial statements, and a business owner can create one himself, but most prefer to leave this in the hands of a knowledgeable professional and turn the chore over to a CPA.

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Every small business owner needs to have a basic understanding of taxes, both state and federal, as well as any local taxes that may apply.

While everyone pays taxes, a small business owner has as a primary goal paying as few taxes as possible. For this reason small business owners need to save receipts for every purchase made. Keep track of all expenses, including the mileage you put on your car for business related trips. It all adds up, and with enough deductions, you reduce your tax bill.

Also, always pay business bills by check or by credit card in order to have a written record of the expenditure. If possible, avoid keeping petty cash in the office. If you must use petty cash, always get a receipt.

Some businesses do some business with others through bartering. This can be great for cash flow, but treat the barter like cash for tax purposes. Trade invoices with the other business and you’ll both come out ahead at tax time.

When it comes close to tax time or when you are planning the new year’s goals, it is always a good idea to look at possible capital expenses. Would you be better off buying a new vehicle, new piece of heavy equipment, or a new computer before the end of the year or after the end of the year? Or would you be better off leasing. Taxes bring up permanent questions such as these, with only temporary answers because the answers change from year to year as the tax code changes.

For this reason having a good tax preparer available as a hired gun is always a good idea. This can be a CPA, or a good non-certified accountant whom you trust. Or a lawyer who specializes in taxes. Generally if you have a very small business a non certified accountant is fine, and the larger your business gets, the more likely you are to need a CPA.

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One of the best ways to evaluate a new business idea is to see if it has been done anywhere else in the world, and if so, was it done with success. There is an old saying that there is no such thing as a new idea, only recycled ideas in new packages.

Some people evaluate a business idea by telling their friends and relatives. The problem with this approach is that your friends and relatives may not be in business. And they may not want to offend you by telling you our idea is a bad idea if they think it is. So try something impartial.

Step one is to discover the existence of a similar business is an internet search using all of the major search engines, and using variations on your particular business.

As an example, let’s say you have an idea for a variation on speed dating, but you want it to be oriented towards business people and not couples looking for dates. Business people are always looking for contacts, and are always networking, meeting new people.

An Internet search under headings like speed meeting people, speed business meeting, speed networking, speed contacts, speed business contacts, quick business contacts, fast networking, quick networking, and other combinations will show you if something is available.

In this case, the idea of adapting speed dating to business contacts does exist in some cities, often with great success and is most commonly called speed networking. This tells you that your idea works some places.

Next, take an informal survey. Call several business people out of the blue. Find their names in the Chamber of Commerce membership guide, or your business journal Book of Lists. Ask them for a minute of time and explain the concept. See if a majority have an interest. If at least half say they do have an interest, you’ve got a winner.

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Methods of conducting market research are varied. What is the best way, frankly, is usually determined by the budget a business has to work with.

Direct mail research for instance is considered to be highly effective, but it is a very expensive method. The same is true with telephone surveys. Several telephone operators are required, in addition to telephones, equipment, an office space, and a database of people to call. Add to that the frustration factor of people confusing market researchers with telephone sales people and hanging up on them and it can be a chilling experience for the ego and the budget.

Many companies have discovered that the most effective way for them to conduct market research is by posting researchers in areas with large numbers of consumers. Some do it at trade shows and exhibit halls at county fairs. Others use the larger shopping malls. Some even use busy grocery stores and discount stores. They will set up a table, have a display of the free giveaway items to encourage people to engage in the research, and the product they are sampling. They will also have a supply of forms.

Many times with research in foods they will have a blind taste test, comparing two different types of snack foods or two types of soft drinks in this manner is popular. In addition to getting willing subjects at a low price – only the cost of the giveaway item – the market research doubles as an advertising and promotional vehicle for the company. If a banner with a company name or logo is prominently display, participating in the research can become the “in” thing to do that day at the mall or in the supermarket.

Another bonus is that the table can also have a sign up sheet for more information on the product if it becomes available, creating an instant mailing list for the new product.

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Working for yourself is the American dream. Most employees have dreamed of being their own boss, and it has many benefits, but there are a few disadvantages to it as well.

Advantages of working for yourself are that you are responsible to yourself. Your destiny is in your own hands, as well as your financial future. You determine how much work you do, when you go to work, when you quit for the day, when you take a vacation, how long the lunch break will be, and if you really want to put up with a grouchy customer. The business is in your hands and you decide. Instead of griping about the bad advertising campaign that corporate came up with, you decide on an advertising campaign yourself.

Disadvantages of working for yourself are really the same as the advantages. You decide when you go to work, when you quit for the day, when you take a vacation, and how much you will make. All the while knowing, if you are a small business, that if you are gone the business is either not open, or if you have employees, that they are not being supervised by the person who cares the most about the business—you.

You have to make all of the decisions regarding health insurance, benefits, marketing, bookkeeping, management, and customer service. Owning and operating a business is a tremendous responsibility and not everyone is ready for or capable of handing the stress or the commitment.

Still, if you are one of those unique individuals with the spirit of an entrepreneur, then being in business for yourself is the only way to live. Many people in fact simply can’t imagine another way to live. Some people in this world are sheep, following others blindly.

Others are shepherds, preferring to lead. Pathfinders who make their own way. If you are an entrepreneur, you are one of the shepherds and will only be happy in business for yourself.

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