Basics of Buying a Business
Some people say that buying an existing business can be a shortcut to success. While that may be true, you should work with an experienced Sacramento business valuation consultant to help you make a wise decision, so that you can bypass some of the stressful and backbreaking efforts involved with the building of a business from scratch and go straight into the ownership and operation of a thriving company.
If you are working with an experienced business valuation consultant, the two of you can get a feel for the business by reviewing the research that your consultant has conducted: he’ll discover the reasons why the current owner is selling, the outlook for your industry and specifically this business, and the business’ stature within the community and within the industry. In addition, you should review each of these areas:
Financial statements.
Take a closer look at the company’s audited financial statements for the past three years and the same period of tax returns. Have your business valuation consultant review them with you. Your business valuation consultant will help you see beyond the numbers to try to determine the reasons for trends.
Accounts receivable.
Review the company’s accounts receivable and see what’s sitting out there as past due and by how much. Get a list of the company’s current debts and see if there are any liens against them.
Any legal issues.
Along with looking for liens, ask if there are any current or past litigation. Have your attorney review the company’s current contracts. See if they have all of the proper licenses, permits, and certifications, and whether they can be transferred.
Review the value of the company’s assets, both tangible and intangible.
Along with your business valuation consultant, see what tangible assets there are, like equipment, property, and company vehicles. Intangible assets can be patents, copyrights, and trademarks, as well as the goodwill of the business and its reputation in the market.
Vendor and employee relationships.
Although relationships vital assets of a business, they can be extremely hard to transfer to a new owner. Do some digging and see with which suppliers and vendors the company works and their current arrangements. See if they’ll work with you on the same terms if you’ll have to negotiate altogether new contracts. Within the company, ask about relationships with employees, and ask whether they’re likely to stay when the company is sold. Run down all of the salaries, benefits, and other HR costs with your business valuation consultant to see how these numbers look when compared to industry and local averages.
There’s a lot to ask when you’re buying a business. Working with a qualified business broker will pay dividends. Your business valuation consultant will help you to review the documents and make a wise decision that will build your business for the future.
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For more immediate help, please send an email to Andrew Rogerson or call our office at (916) 570-2674.
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