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Friday, March 22, 2013

How to buy a business

By Greg Jones

In life some things are easier than other, for instance: buying a pair of shoes or the weekly groceries is far easier than buying a home or a vehicle. However, one of the more troubling and tricky purchases is buying a business. The reason why this is such a tricky business is that more often than not, this purchase is your livelihood and you will depend on the revenue earned to support yourself and your family.

In order to purchase a business that is both suited to your strengths and profitable, you need to ask some questions. Here are the five things to look out for when buying a business:

Number one – The value of the business

The first step to buying a business is finding out the value of the business. Contact a valuator and ensure that they look at the property and the assets within the business. Assets include: vehicles, machinery and stock. Once you have an accurate picture on what the value of the company is, then you can make an offer.  

Number Two – How does the business make a profit?

In order to buy a successful business, you need to find on that has a growing customer base. Find out about which services/products make profits for the company and which ones don’t. Speak to customers and local industry experts about the company and find out the general thoughts on the company and their products/services.

Number three – Why are they selling?

An important thing to factor into the purchasing is finding out why the company is on sale. Is the company is sever debt, is the company losing money or is the seller just not interesting in the business. Ensure that you understand why they are selling the company and if the company is still a good one to purchase.

Number four – Who is the competition?

A quick way to ascertain how much the business can grow is to look at the competition. Is the market swamped with much larger corporations with bigger marketing budgets and better concepts? While a highly competitive target market is not a bad thing, be sure that you are able to compete in the industry space.

Number five – Sign the agreement

The last step is to sign the agreement. If you are happy with the price and the business, make an offer on the company. Remember, while a hand-shake signals your intent, this is not a final yes. Ensure that the contract terms suit your needs and does not leave you out of pocket or having the previous owner claiming ten percent of future earnings. A useful tip: have a legal consultant look over the contact before you sign and purchase the company.

Use these five tips to ensure that you buy a company that has the potential to grow and improve. Remember, if you are unsure of anything, speak to your bank or legal representative and ensure that you know all the facts before signing the contract.

About the author: I am Greg Jones: a small business owner, gym lover, adventure junkie and budding master chef in the kitchen. I purchased my company five years ago and struggled to pay of the loans, the reason was that I did not know all the facts. I know am older and wiser and understand how businesses operate. I turned a cash cow into a company that not only supports my family, but one that gives me great joy and flexibility.