Buyer Tips (Detailed)

Identify Interests and Skill-Sets

What areas of interest do you excel in? Do you have a special skill set that would be a good fit for a particular field? If you determine that you really have no idea what type of business you want to invest in, you need to be honest & realistic with yourself; use the process of elimination & perhaps that will help determine what area and type of business you should pursue.

Capital to Invest

There are some programs out there that will require a minimum down payment of 10%. However, most conventional lenders will require at least 20% down. In addition to the initial down payment, you will also have to factor in other expenses such as appraisals, advisory fees and operating capital.

Why the Business is for Sale

Does the owner want to retire? Has strong competition moved into the area? Understanding why the business you are looking at is for sale is very important.

Determine if the Price is Fair

Most importantly, the buyer should look at the last 3 years of the company’s performance and financial records, as well as, the most recent. This should dictate where the business needs to be from a pricing standpoint. The buyer should not put as much value into potential or arbitrary forecasts when determining price.

The first course of action is to make certain the business creates enough revenue to service the debt. Obviously, if this is not the case the business is, more than likely, overpriced.

How Active is the Owner

The buyer should make sure the transition of ownership is smooth. For example, this is why it’s beneficial to work with a broker and sign agreements with the current owner. Therefore, utilizing the previous owner to observe operations, employees, relationships with clients is necessary before making dramatic changes. The buyer should view how daily operations are performing first before making changes to an existing environment that has been functional and successful in the past.

Who Gets the Receivables

The receivables and payables of the business need to be accounted for. If the receivables are, for instance, at $500K and payables are at $350K day of closing, there is a value of $150K that should be factored into the deal.

Merger and Acquistion Source
International Business Broker Association