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#1 - How do I know if the business is right for me?
This is often a difficult question to answer and really can only be figured out by the buyer himself after much soul searching. Many people are happy doing anything that does not require them to answer to Corporate America. Most business purchasers, however, are buying a business that is in a field that they have worked in for many years, either for themselves or a competitor. The best advice is usually to think about types of business you would enjoy and talk to others that are in the industry. Find out if their personalities are conducive to yours. There are also companies such as the Entrepreneur's Choice who specialize in evaluating personalities and placing people in small businesses. If you are certain you want to be your own boss but are not sure what you should do, then this professional option might be perfect for you.
#2 How do I know I am getting a "good deal?"
The independent business valuation that we provide to all of our potential buyers will lay out all the financial information pertinent to a particular company in black and white. Even if you don't have an accounting or financial background; a little due diligence on your part, professional guidance from trusted associates, and a lot of common sense will tell you whether or not the business you want to purchase is a "good deal."
#3 How do I know I will really make the income stated?
Most business owners write off a large portion of personal expenses through the business as well as declare less cash sales than is reality. These owner benefits are called discretionary income and are all included in what is called Adjusted Net Income. Adjusted net income is what the value of the business is largely based on. We can only base our figures off what is reported to us as the truth by the business owner. If there is a large amount of discretionary income it is always advisable to work in the business you plan to purchase for several weeks to physically verify the level of cash coming through the door and compare it to the reported income.
#4 Will I have to pay for the whole business out of pocket or can I
get financing?
Generally yes, but like any other loan you must have good credit or collateral. Unlike purchasing a house, purchasing a business is a risky proposition for a lending institution. Provided we can show cash flow sufficient to support the debt payment along with supporting your existing lifestyle, then financing a portion through a traditional lending source or the SBA is usually not a problem. Usually this will require collateral to be put up in the form of owned real estate or often the hard assets of the purchased company if they have a resale value. Most owners will also agree to take a small note to get a deal consummated. It is in their interest to do so as most are just as excited to get on with their lives, as you are to start a new one.
#5 Will I have to dive in with both feet alone or will there be a smooth
transition?
There is generally a very smooth transition from seller to buyer as long as all the financial agreements made are adhered to and there are no surprises at closing. Remember that a seller is giving you their baby in a sense. This is a part of them that they have built for many years and want to see it succeed, especially if they have agreed to take a note on the sale. They get nothing out of hoping you will fail. Often there is a transition period agreed upon that can be anywhere from one week to two months depending on the industry. This gives the purchaser time to meet all existing clients in the presence of the seller and put them at ease regarding the transition. It also allows time to adapt to and change current administrative practices as they see fit.
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