When most people think about starting a business, they envision building it from the ground up. However, buying an existing business can minimize risk and optimize rewards. When you buy a business, you take over an operation that's already generating cash flow and profits. You have an established customer base, reputation, and employees who are familiar with all aspects of the business.
Ask yourself: How much do you need for the business to pay you? How much do you have to invest? Will you need financing?
A good broker will help answer questions and find a business that’s right for you. It may even be in an industry you never considered.
The negotiation process is where brokers earn their fees. Brokers stay focused on the end goal of completing the transaction and smooth out any problems.
Fees are paid by the seller. There is no cost for a broker’s services to you as a buyer.
When you start taking a serious look at a business, here are a few things you’ll want to consider:
• Inventory. You must know the value of the inventory and you should only pay for inventory that is usable.
• Furniture, fixtures and equipment. This includes all products, office equipment and assets of the business. The seller will provide a list and the total value. The value should be the market value. If you purchased that item today and in its current condition, what would it cost?
• Contracts and leases. Review all contracts and lease and purchase agreements, distribution agreements, subcontractor agreements, sales contracts, and employment agreements.
• Tax returns for the past three years. While you should review returns, they are not a true measure of the profitability of the company. Many owners charge the business for items that benefit them personally. Brokers add back these expenses to determine a true benefit of owning the business.
The big question for every buyer is ‘What is the business worth?’ It’s not too difficult to determine an appropriate value. Once the owner’s benefits have been determined and the revenue is known, it’s often easy for a broker to run a list of similar businesses that have sold. Using a multiple of earnings, you can determine the approximate value. The seller may have purchased an independent valuation, which is a more precise measurement.
Every buyer is making the purchase based on the potential of the business, but the price should be based on the current worth of the business.
Help is available via phone or email: (904) 823-7225 | jonhhunt@bellsouth.net
10151 Deerwood Park Blvd., Suite 250, Jacksonville, Florida 32256
Photo Credit and thanks to the St. Johns County Convention and Visitors Bureau
