How to buy a business without a broker

Firstly, ask yourself if you are prepared to do the hours of the business you are thinking about buying.

For instance:   a coffee shop/snack bar.

Sounds like fun. You and the Mrs could easily give up both of your jobs and run a small shop. Many small coffee shops will make a nice net profit of over 100k. Sounds good. But, are you really prepared to work six and a half or seven days a week? Your starting day may be currently at 8.30am. With a shop you may well be required to front up at 4 or 5 in the morning. Knock off time may be 6pm for the customers but for you it might be 8pm. That’s a 16-hour day.

Will your marriage survive the change?

If you answer yes to all this, then proceed. Cautiously.

Determine your personal goals. Decide what industry you would like to work in.

You will have much more success if you get into a business you already understand.

Once you decide which and what, do your research. Look to the geographical area you want it to be in. Is it already saturated with similar businesses or is there room for yours amongst others,

Is there room for expansion in your region? Is it feasible to expand interstate via the Internet?  Will you be able to add other product lines?

Have a look at your financial situation. Possibly talk to your bank manager if a loan is to be involved.

Many business sellers will want to assess the financials of the buyer before they proceed with the details of a purchase. Particularly if a broker is involved. They wont suffer time wasters. Have the proof of the money readily available.

You may not know much about the business you are interested in purchasing.

A seller will want you to sign a non-disclosure statement before they offer their financials to you.

A business seller may be willing to sell to you at a lower price as the broker’s fee is not involved.

Keep your cards close to your chest when discussing price for the first time with the seller. This is not a game. Its your future.

The seller before presenting you with their financials of the business may ask to see your financial statements to prove your credit worthiness.

Review the business history thoroughly. Ask any question that comes into your head. You often are prompted by what you see at the business as to what to ask.

Look for consistent sales and growth.  If not ask why not.

Ensure the business has a wide range of customers providing a cross section of revenue stream.

Consult the local chamber of commerce.

Check with like businesses in the geographical area.

Check with other businesses near-by and tell them what you are doing and ask if anything untoward is happening in the area.

A broker who is acting for the seller will provide the accounts to you for perusal.

Employ your own CPA to look at the accounts. A certified Public accountant is much more qualified to give you an opinion than is the seller’s broker.

Ensure the business can be transferred from the seller to you.

An attorney will assist in this matter. Even if you have your own business broker you must still use an attorney to be sure of the legalities.

Check the company records to ensure there are no outstanding lawsuits. Check to see if any lawsuits have been settled in recent years.

Be prepared for counter offers. A new or amended contract may be necessary.

Remember buying an existing business is more costly than starting from scratch.

To obtain finance for a new business will require a substantial business and marketing plan. On the flipside, finance for an existing business will be easy when you have the financials available.

Sometimes an existing business can have patents and copyrights. Get these valued independently.

Check the inventory to see its age. You may be stuck with obsolete inventory, at a substantial write-off cost.

Ask the customers about the cooperativeness of the employees. Sometimes there is a crucial employee who may or may not be cooperative.

Consider using a broker when you are in the final phase of the purchase.

Good luck.


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March 1, 2010

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