First-Time Business Buyer?

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Buying a business for the first time can be like buying your first car - the color is right, the dealer is extending you credit and you sure would look good driving it!  As with a first-time business buyer, you want to make sure you understand what you are getting yourself into with your purchase.

Make sure you are ready.

One of the first items you need to understand is your motivation(s). As part of that understanding, you will need to temper you enthusiasm for purchasing a business with realistic expectations and a strategic plan, the business could tank as fast as the new car when the oil is not changed.

1. Is your family prepared for you to own your own business?
A person buying a business needs to understand that they are not just committing themselves to the success of their business, they are making commitments for their family as well. They may have to ask members of their family to assist them in the business, their family may have to make financial sacrifices, and, at a minimum, their family will be spending a lot less time with the new entrepreneur as the business demands additional time. Is the entire family prepared for this commitment?

2. Is the new business going to give you enough income?
This goes along with the first point, but the new owner needs to know exactly how much income the new business will be generating and how much he will need. If there is a shortfall, a plan needs to be in place for bridging the gap long before the business is purchased.

3.  Where are the holes in your talents?
We all have tasks that we enjoy and tasks that we do not enjoy. As a business owner, many times you have to do both. If there are some tasks that you know you will not enjoy and not excel in, prepare now to hire the appropriate person for that task. Your business is too important not to have the right people doing the right jobs.

4. Have financing arranged ahead of time.
Have your net worth statement prepared, have your credit from your banker extended and know what you can afford before you even begin to imagine the business you will purchase.

5. Have your professional advisers lined up.
Already know who you will use as your attorney, accountant, insurance agent, real estate adviser, or any other consultants before you begin the purchasing process. You must be comfortable with these advisers and you must be willing to use them in the due diligence process - they money you pay them now will be minuscule compared to your costs in the end if you don't use them.

6. Have a business plan.
Make sure the buyer has a detailed business plan for the purchase of the business. Without this very important road map, the new buyer can easily find himself off the road and into the ditch - and if your client seller-financed the acquisition, your client could end up with a lemon.

7. Time to Sell.
Have a valuation done on your projected business plan.  All businesses have valuation formulas.  Some valuations are based on sales, some on EBITA, et cetera. 

In short, make sure that you will get an acceptable return on your investment when it is time to sell.

- Steve Sink