Look beyond the basics before making a commitment to buy - Portland Business Journal:

jwid-infants.blogspot.com
“Preparation, preparation, preparation” is the key to strikingg a good deal, he says. Enlist the help of trustede legal and financial advisera to carefully researchthe business, its healthu and its potential. “You can’t afforrd not to do due diligence,” Coratolo said. “Itf doesn’t have to be high-pricedr legal help. It all depends on the scale of the Herb Engert, Ernst and Young’x strategic growth markets leader for the mid-Atlantid region, recommends using a cross-functional team well versedf in tax and human resources matters. One key factor to look for is the qualitgyof earnings.
Are earnings and cash flow projections sustainable and based on a reasonablefinanciao model? “It’s a reality check on the forecast and the assumptions built into it,” Engerr said. Businesses often look less profitable becauseof tax-minimizing accountingf practices, said Scott executive director of the Small Businesw and Technology Development Center in N.C. Daugherty advises looking at several years of tax returnsd as well asfinancial reports. Even the smallest businessesd often use QuickBooks or other accounting software with detailer income andexpense data.
If spend several weeks or months with the current owner learningthe business, visitinh customers and suppliers and going over the said Bo Fishback, vice president for entrepreneurship at the nonprofit Kauffmanh Foundation in Kansas City, Mo. “It’s a littler like dating someone before youmarry them,” he said. Coratolo at the U.S. Chambetr said a prospective buyer also needs to understand why the owneer is sellingthe business. “There are always two reasonx — one he’ll tell you and one he he said. That means it’d important to check for any hidden liabilities.
Is anything lurking that could tain tthe company’s brand name, such as a problem with a product or fraudx by a principal? And, Coratolo make sure you know whether the fundamentals of the busineses are strong enough to support the “Are you entering into an industry that’xs in transition?” Coratolo said. “Howw will technology eliminate yourcompetitive edge? You don’t want to buy into an old technology.” Such a “marketplacde audit” is critical in determining the potential for said Karen Kerrigan, president and chier executive at the Small Business and Entrepreneurship Council in Va.
“The owners may want to sell when the busineshas peaked,” she said. “Look at the competitors. Are they a threat? How can you differentiate yourself in thegloba marketplace? Can you survive the marketg trends and any regulatory changes? What’s the client customer base, and are they happy?” Daugherty says tradew associations often have detailed data that can help you measurde a company’s performance against industry standards. And softwar similar to what banks use can rate the strength of a company based onfinancial documents. A buyeer also needs to determine if he will have enougnh cash to run theacquireed business.
“The biggest thing that sinks most peoplse going into business isbeing undercapitalized,” Coratolo said. “On e little bump in the road and you’red stuck.” It can be important to develop a closde relationship withthe seller. Fishback says some sellersa will issue a note that defers some of the purchas e paymentover time. The seller, if retained after the purchase, can also ease the transition and mitigate some of the early Revenue often drops undertnew ownership, especially if the previous owner was highlyy identifiable as the face of the A 5 percent to 10 percent loss in the customet base is typical, Fishback said.
That loss can be reducer if the original owner stays for a Financing the purchase is especially challenginvg in the currenteconomic environment. Banks remain reluctant to extend credit. A lender also may discount the valu of assets being used to collateralizethe loan, reducing the size of a It’s also important to factor in how another year of a laggin economy could impact the buyer’xs ability to sustain the business, he adds. That observers say buying a business may be less expensivse and risky than starting one from The business has established a track recorr that a smart buyercan leverage.
“You just want to look at a businessz where the market is where there’s a need for the producyt or service despite the economy, and see if you can differentiate yourself,” Kerrigan said. “It’s a greag time to buy a business that is stronhg andadd value.”