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Can someone with please share vital information on what to look for when buying businesses? Im new to biz

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Answers (6)
Salman (Sam) Tabani
Tabani Realty and Mortgage
Business Broker
Dallas County, TX

No matter what type of business you are buying, please make sure the sales and bottom line numbers are verifiable and you are certain about them after feasibility.

Mar 19, 2010
Frank Fitton
Director of Social Marketing
Palm Beach County, FL

I think a key idea to remember when buying a business is to try and buy a winner. I know its tempting to buy a loser business and turn it around, but I don't think it's the financially sound way to operate. Purchase a mature profitable small business and you'll have cash flow right from day one.

I'd also recommend not straying out of your field of expertise. A person that has been an executive of a produce company for 15 years has no business buying a water park. Stick to what you know.

There are plenty of businesses for sale by owner out there, especially during these troubled times. This is a great opportunity to buy a business. Instead of waiting for things to happen, get out there and make it happen. Only do so after due diligence though of course.

Anyone interested in buying a business should check out http://www.businessbuyeradvocate.com/ . It's a great blog for anyone even thinking about making a decision to buy a business. It's full of informative knowledge. The comments area also is full of experts to answer any questions you might have or to just bounce perspective off.

Mar 19, 2010
Douglas Batts
Murphy Business & Financial Corporation
Collin County, TX
Premium Broker

Bruce, you've received some good advice below. I would add that lenders, especially lenders like Wells Fargo, will want to ensure that your business will support at least a 1.35 debt service. This means that you should have at least a 35% debt service cushion left over after all monthly expenses are paid. Some smaller, regional lenders may be more lax but this is a good ballpark to aim for.

Mar 18, 2010
Julie A. Barnes, CPA
Small Business Exchange, Inc.
Travis County, TX

Hello Bruce,

The answer from Scubes Acquisitions is a great start - you need to know what businesses fall within your financial capabilities. I would disagree slightly with the need to audit - as a CPA, I know that this process can be cost prohibitive.

Instead, make sure that you can reconcile the last 3 tax returns to the books. Remember that non-cash expenses, such as depreciation and auto expense should be added back to net income per tax return to reach a cash flow.

Owners rarely overstate income on tax returns - for obvious reasons. After reaching what you consider to be a reasonable bottom line - subtract what you expect as a 'salary' from the business. Is the remainder sufficient to cover a loan without undue hardship? Most financial institutions will want an approximate return on investment of 20% or more to consider you for a loan.

You can find tons of common sensical advice about buying a business on my blog: http://www.AustinBusinessesForSaleBlog.com - I encourage you to pay a visit.

Good Luck!
Julie A. Barnes, CPA
President, SBX, Inc.

Mar 18, 2010
Jon Holmquist
Edgemaster Model 400 sharpener
President
Marion County, OR

Bruce, if you are that new to the business world, as a 71 year old entrepreneur, I would suggest you start with a franchise. Not necessarily mine but they can usually give you a lot of answers that you won't get from a seller and the franchisor has to work by the Franchise Disclosure Document.
Find one that you can fall in love with the concept and check it out. Good luck Jon at Edgemaster Mobile Sharpening.

Mar 18, 2010
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Hernando County, FL

There is a lot you need to look for when buying a business. We suggest the very first thing you do after you have the capital funds aquired is to go visit the establishment you are interested in. Spend about 6 Prime hours there. Look at whats around it. what you can do to make it better. The reason we suggest this is because we get a lot of clients that dont do their diligence and then cant figure out why their numbers dont run what the previous owners ran. Do your own AUDIT. When a business is for sale.......mmmm sometimes the numbers are a little better than ACTUAL. We recommend you read the NEW BUSINESS ADVICE link on this page and look for other trusted websites that will help. What ever you do......DONT BUY A BUSINESS THAT SOUNDS TOO GOOD TO BE TRUE.....they simply dont exist. This is an opinion shared by a team of 4 and several investors!

Mar 16, 2010