In this article we will explore the five most important steps to take when buying a business. It is critical that a prospective buyer determines the true worth of a business. Buying a business is exciting, however, don’t lose track of what is important.
Steps to Take When Buying a Business:
Step 1: Evaluate What is Actually Included in the Sale
Evaluate the business you are considering carefully. Take the time to understand about the business and understand what is included in the sale. Do not assume what is or is not being sold when buying a business.
Step 2: Understand Business Performance
Understanding the performance of a business can be very complex. The numbers allow you to quickly evaluate the bottom line. However, in the process of evaluating the business, you might discover that there are many flexible factors that could quickly alter how well the business performs. Here are a couple of examples. Assess the number of hours the current business owner is working. Determine if key employees are contributing enough to the business. These are just two factors that could influence overall performance.
Step 3: Look at the Financials
It is important to understand the current financials of a business. Almost all buyers must obtain financing. This means that it is important that the business has strong financials in its current state. You will want to evaluate profit and loss statements, balance sheets, tax returns, and other important financial documents.
Step 4: Evaluate the Business Plan
This is a key step. A business plan shows you a path for growing the business. It helps to understand the current owner’s goals and what steps they have outlined to achieve those goals.
Step 5: Look at the Demographics
Understanding your customers is one of the best ways to grow a business. It is important that you have a clear understanding of the demographics of the business and why customers should remain loyal. You will also want to know if there are challenges ahead. For example, an expanding competitor or a new competitor entering the arena could be a challenge.
Evaluating a business is not a simple process. The team at EBIT Associates can help guide you through the steps to take when buying a business. We can help you find the right business for your needs.