We are often approached by prospective and existing clients to advise them on buying a business. Books have been written on this topic but the following provides an overview of some of the key points that need to be considered when purchasing a business.
The Starting Point
Like a house owner, business owners often have an over-inflated view of what their business is worth. That can result in emotional issues intruding into negotiations.
The Investment Decision
The critical decision is evaluating the business and whether it’s a good deal. Over paying for a business means the seller has taken value off the purchaser’s balance sheet. The ultimate decision for a business buyer is “does the investment produce an adequate return” when assessing the business nature and its risk. It is important the buyer is clear about his/her objectives. Is the intention to “buy a job” or is it to make a serious investment with a focus on making a good income and significant capital gain.
Keep in mind, a high percentage of small businesses fail or cease within the first 5 years and remember once you own a business your capital is at risk.Details