How to Decide on a Small Business to Buy

Buying a pre-existing, established business can give its new owner a great advantage over starting a business from the ground up.  While there is still no guarantee when buying a small business , there are some goodies that may come with the business that will be very helpful.  You may choose to ask about some of the following in advance or even request them as terms of the sale.  Knowledgeable employees who are trained and competent at their jobs will help keep your new business running.  A loyal customer base will keep cash coming in.  A market that already recognizes and accepts the service or products will keep you from having to take the risk yourself.  While it’s true that there is much less risk involved, the buyer doesn’t exactly have it made in the shade with lemonade just yet.

This process can and should require some soul searching.  What are your reasons for wanting to own a business?  What type of businesses are you attracted to?  Do you have the appropriate skill set to operate that type of business?  Do you have experience in the industry?  Is your personality a good match for the rigors of the business?  And don’t forget to assess some of the realities that may dictate your success.  Are you situated in a good location or are you willing to relocate?  How is your credit and your general financial health?

Once you’ve taken the journey down this road and discovered that you want to move forward with finding a small business to buy and call your own, there are a few places you might want to search.  Look for the appropriately headed section in the newspaper in the location upon which you’ve decided.  You’ll often find contact information for the current owners and can then ask them the questions you’ve prepared in advance to find out if their business seems like the match you are seeking.  Other great resources someone in your position should know about are LittleBizTrader‘s business for sale opportunities and business brokers, both of which can lead you to opportunities that will satisfy your soul.

Determining the Value of a Small Business

It is generally a challenge to practice detachment from your business in order to evaluate it objectively, but this is exactly what is recommended in order to determine its market value. Without using this approach, most people looking to sell their businesses fall into the trap of overpricing them which can have the undesired effect of inviting a tedious level of scrutiny on the part of the buyer, as well as the business being on the market for much longer than they’d like.

If objectivity is beyond your grasp, you may want to look into hiring an outside professional. A business financial analyst can help you figure the realistic worth of your business and end saving you many times more than the upfront investment of hiring them. Another tool available to the small business owner to determine the realistic market value for their business for sale is the business profitability calculator. It is essentially a research tool meant to be used by the business community to provide small business buyers and sellers with an inside view of the potential deal.

Once the asking price has been established and you’re ready to put your business on the market, there are a few other things you can do to increase your professional image and decrease the change of squirming in the face of scrutiny. You can expect a potential buyer to want to see a business plan, balance sheets, profit and loss statements, and a list of your clientele. Having an agreement prepared and reviewed by an attorney for both buyer and seller to sign will put you in position to seal the deal as soon as an interested buyer is ready. It will show that you are organized and prepared and give the buyer one less reason to delay the decision to buy your business.

Preparing a Small Business for Sale

Adequately preparing your small business for sale is crucial – for both ease of sale and maximum profitability. A prospective buyer will naturally be wary of taking on the huge financial and personal responsibility that comes with the purchase of a business, so you must ensure that your business is unproblematic to turn over into new hands. By adhering to the following steps, you can make the preparation for the sale as efficient and effective as possible.

One of the most vital steps is to allow ample time to prepare for the sale – a year is preferable.  This gives you time to tie up all loose ends, and get your financial statements and other paperwork in order. A potential buyer will want to thoroughly inspect all of your financial records and projections, so you must ensure that these are comprehensive and up to date.  Document all business agreements and relationships, such as those with suppliers and local government departments - unwritten or ‘handshake’ agreements are not guaranteed to survive the sale. Also attempt to settle any outstanding debts, whether they belong to the business or customers with unpaid accounts. Any leases on real estate and equipment should also be renegotiated or renewed.

Creating a complete inventory of all stock and physically cleaning up your business are also key steps in preparation. Having a full record of all stock not only looks appealing in your financial records, but will also benefit the new owner of the business. If your business has a physical location, take a moment to look around your premises through the eyes of a potential buyer. Eliminate any unnecessary clutter, repaint where required, and make certain that everything is in a state of good repair and cleanliness.

Ensure that your current employees’ interests are met, so that good employees are retained through the sale process. Loyal and effective employees are essential to a business, and prospective buyers will be positively influenced if they know employees will stay with the business. Experienced employees will help to make the ownership change a smoother transition, and therefore make your business more attractive to buyers.

Finally, do not be afraid to seek the help of an experienced business broker at any time during the preparation and sale process. Such an individual can greatly aid the final sale, and also assist you with many aspects of the sale preparation. By following these steps and allowing yourself sufficient time, preparing your small business for sale can be a straightforward and ultimately profitable endeavor.