A vast majority of those looking to buy a business have never owned a business. These buyers took the time to diligently explore the marketplace and eventually found a business that motivated them to explore deeper before they finally made a well thought out purchase. As you begin your search, keep in mind that running your own business is usually a lifestyle change, but can also be a dream come true as you navigate your ship and venture out into your destiny.
A business with a long track record means there are good reasons to be operating. It will be well known in the area, and people will be used to patronizing the business or using its services. The longer it has been in operation, generally, the better the business.
If the owner has been in business for six months and says he is ready to retire; you should be suspicious! The more valid the reason for sale, the more realistic the seller will be in considering your offer. Some sell for health reasons, some because of sheer burnout. Couples go through a divorce and decide to sell rather than work together. Many times owners just want to start a new adventure.
The financial records are a good indication of how well the business has been doing over the years. Keep in mind that tax records are not designed to show the business in the best light; no one likes to pay more taxes than they have to, and business owners are no different. Generally, tax returns are a worst-case scenario. You need to be able to look at the expenses and discover which ones are non-cash items, such as depreciation and business use of home and vehicles. Did all the vehicles you were paying for through the business belong to employees or did some belong to family members? A professional business broker can help you identify these expenses and then can recast and add back to the bottom line. They key is proving cash flow!
The simple answer is – you can’t. We all know in primarily cash type businesses, that there is the possibility that the seller is not reporting all of his income for tax purposes. Many sellers will tell you about how much they are earning in addition to what the financial history shows but be diligent and best to stick with what can be proven.
Do you think that you can buy a business with lots of cash flow for zero down? Many sellers are willing to assist in financing the sale of their business, but they’re not going to give it away. Keep in mind that the business represents the biggest financial asset the seller has. they have.
