Not sure which Business to buy? Do you need to know what a fair deal is?

Martin Smith thought he was buying an established business with good credit and collectible accounts receivable. The day after the settlement the surprises began.

Inventory could not be used because the expiration dates had passed. The money listed as accounts receivable had already been collected. Providers who were only willing to ship COD. Over $100,000 worth of real problems that should have been caught during the business purchase process surfaced and almost put Martin out of business.

Can you afford to be surprised? Of course not.

You have the power to not end up like Martin.

Owning your own business is part of the American Dream. Buying a business has many advantages over starting one from scratch if you know how to go about it. Be prepared and get all the benefits of buying an existing business.

Tangible benefits such as existing cash flow, existing customer base, existing systems, trained employees, and locations can be obtained more cheaply by buying an existing business than starting from scratch.

1. Understand and know what you do well and what you like

You really have to look at the activities you like to do and find a business that allows you to do them. For example, some people want customers to come to them. A retail store can work well for them. On the other hand, some owners would go crazy staying in a store all day; maybe something with outside sales will work for them.

Are you a people person, a thinker, a leader or a salesperson? Do you like fixed hours, flexibility, etc.? How much money do you have to buy with? How much money should he earn each week?

Remember that the process of buying a business is not the same as running it. Do everything you can to make sure you buy one that you will love to run.

2. Do a thorough search for a business

Make sure you know how to search for a business. Don’t just go to one source, but actually check out multiple trusted sources to find the right business for you.

Systematize your notes so you know what you looked at. Be sure to compare your strengths and weaknesses with the daily tasks of running the business.

3. Understand and properly value the business

Understand the basic financial techniques to value a business; is cash flow and other assets. Know how to prepare a basic business plan to make future projections.

Understand how the company is getting its customers. Know how you deliver goods and services. Learn about cash flow and how you will maintain current cash flow and then increase cash flow.

4. Know how to structure and finance a business

Have a basic understanding of how business valuation and related cash flow are related. Make sure you are aware of various possible ways of conducting a transaction to overcome different risks.

Understand what can be financed with a conventional bank loan, SBA loan, or seller’s rebate. Understand how to take your blanket agreement and put it into a final enforceable contract.

5. Do Your Due Diligence Completely and Correctly

Know what to look for when researching a company. Learn how to link accounting records to source documents. Understand inventory, equipment, vehicle titling, and other issues. Understand what needs to happen in settlement. Make sure you get what you agreed to pay for.

bonus tip

Recognize that the Broker almost always represents the Seller. For most small business purchases, you, the buyer, will do most of the process on your own. Make sure you know enough to select the right business and negotiate a fair deal.