What to Look For When Buying a Business
If you’re looking to buy a business, the first thing you should do is get a business broker onboard to provide you with some options as well as guidance in the purchasing process. While it’s okay to look into purchasing a business – and handling the transaction – on your own, it is not advisable.
You want somebody to look after your interests who is seasoned and knowledgeable in the process, and brokers get paid from the same predetermined commission amount (whether one representing the whole deal, or two brokers, one representing each party), so it will not affect price you will be paying for the business.
Once you’re in communication with a good business broker, look for businesses that have the following:
- Steady financial performance year-after-year, going back several years (with the exception of years where things were out of the ordinary – such as the Covid pandemic).
- Solid source of financial documents supporting the operation, such as tax returns that reflect the business accurately. If tax returns are not available, another strong method of verifying the financial performance of the business, such as internal P&Ls with bank statements to substantiate, can work if everything else looks good in the business.
- Been in business for several years.
- No serious public issues – Google the business and see what comes up online. Hopefully it has a good online presence already.
- In line with your skill set, and if not, one that has the hired talent or licensed individual on the payroll.
- Fits how much you’d like to work (hours of operation and hours the owner works), or if you’d like it to be hands off and automated, an absentee owner business with management in place.
- Well-priced compared to the income it is making. Check comparables, if any. Request this from the business broker.
Looking for businesses that have these attributes will limit your risk and give you the greatest chance of continued success with your investment. For an excellent source of businesses for sale, see here!
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