Sometimes there is a situation where we have finances but are not ready to take risk of making a intiative towards startup we will either gain or lose .....but if really want to do business we can start by doing a investment in an on going business that is taking over a business....but the problem is due to lack of experience and knowledge we don't know what to see in that business that is in other terms we don't know what are the key elements to be looked upon ......
Here I have shared to you guys those key elements which are very essential to be kept in mind before taking over a ongoing business...!!
To successfully analyze the value of any business, you should have enough experience to recognize specific details that are most relevant in that type of business. You need enough knowledge to take the information provided by sales, personnel, or financial re
cords and (1) evaluate the past performance of the business and (2) predict its probable future developments. You need objectivity to avoid excess enthusiasm that might blind you to the facts. Don’t let emotions cloud your business decisions.
At a minimum, you should ask the following questions to gather information about the business you are considering buying:
• History—How long has the business existed? Who founded it? How many owners has it had? Why have others sold out?
• Inventory—What is the current status of all products and materials? What is pres�ent now? What existed at the end of the previous fiscal year? Have the inventory appraised, keeping in mind that you do not have to accept the value set by the seller. The saleability and value are major points of negotiation.
• Tax returns for the past five years—Investigate how comingled the seller’s personal and business dealings had been—were business funds used to purchase personal items or trips? You and your accountant need to analyze returns to get an accurate financial net worth for the business.
• Financial statements for the past five years—Compare these with the seller’s tax returns to determine the true earning power of the business. What is the profit re�cord? Is profit increasing or decreasing? What are the true reasons for the increase or the decrease?
• Sales records—Yes, sales revenues are on the financial statements, but you need to evaluate sales by month for the past 48 months. Analyze by product line and by other factors such as cash sales versus credit. This will give you a picture of the seasonality of the business and trend lines. Do further analysis on the top 10 (or whatever break number makes sense) customers. It’s fine if the seller does not want to identify them by name—a code is fine since you are more interested in trends.
• Contracts and legal documents—This would include all leases, purchase agree�ments with suppliers, sales contracts with customers, union contracts, and employ�ment contracts. If the business involves intellectual property, such as patents, have those documents analyzed by a specialist. Real estate leases are especially sensitive since location can be a huge competitive advantage for your small business. What are the terms and length of the lease? Is it transferable? Does the landlord have the right of first refusal (i.e., does the landlord have to approve you?)? Can the lease be renewed?
• List of liabilities—You are looking for liens by creditors against any assets. There may by claims such as employee benefits or out-of-court settlements still being paid off that do not show up on financial statements that a savvy accountant can find.
• List of accounts receivable—While A/R are on the balance sheet, you need to see an aging schedule breaking them down by 30, 60, and 90+ days. The longer accounts are outstanding, the less value they have.
• List of accounts payable—You need to see a schedule just like accounts receivable because of the impact on cash flow.
• Sales taxes—When buying the assets of a business, you can avoid responsibility for the seller’s debts and liabilities—except sales taxes. If the seller has been under�reporting (or not paying) sales taxes, the state can (and will) come after you for the entire amount owed. You can sue the seller and get a settlement, but if that person has skipped the country, you are stuck. Do not pay a cent for a business until you have a clearance certificate from the state tax authority (ask your lawyer).
• Furniture, fixtures, and equipment—ff&e is a standard comparison for what you are physically buying. As with inventory, valuation, condition, age, and whether equipment is purchased or leased have an impact on value.
• Marketing—How has the seller communicated with customers? Get copies of all advertising and sales literature. This will give you insight into the image of the business and how customers perceive it.
• Suppliers—Are there dependable sources of supply for all the inventory, supplies, or materials that the company needs? Evaluate current price lists and discount schedules.
• Organizational chart of current employees—Since employees are a valuable asset, you need to understand how they work together. You need to be especially careful to see if key people are willing to remain. Are any salaries inflated, or does the seller have a relative on the payroll who does not work for the business?
• Industry and market region trends—What about present and future competition? Are new competitors or substitute materials or methods visible on the horizon? What is the condition of the area around the business? Are traffic routes or parking regulations likely to change?
• Key ties—Does the present owner have family, religious, social, or political connec�tions that have been important to the success of the business?
• Seller’s plans—Why does the present owner want to sell? Where will the owner go? What is he or she going to do? What do people (customers, suppliers, local citizens) think of the present owner and of the business?
• Buy or build—How does this business, in its present condition, compare with one that you could start and develop yourself in a reasonable amount of time?4 Are you bored with the idea of shopping for a business the old-fashioned ways, such as through classified ads and business brokers? Then go online—specifically, go to www.bizbuysell.com, a very comprehensive site for buying or selling a business that offers a database of thousands of established businesses for sale. You begin by choosing where you want your business to be. All 50 states, plus Africa, Asia, Australia/New Zealand,Canada, the Caribbean, Central America, Europe, and South America, are represented.
you choose the type of business that interests you. You can choose all business categories or pick from retail, service, manufacturing, wholesale, construction, transportation, finance, and several other miscellaneous categories.
you can also see:
Here I have shared to you guys those key elements which are very essential to be kept in mind before taking over a ongoing business...!!
What Do You Look for in a Business?
To successfully analyze the value of any business, you should have enough experience to recognize specific details that are most relevant in that type of business. You need enough knowledge to take the information provided by sales, personnel, or financial re
cords and (1) evaluate the past performance of the business and (2) predict its probable future developments. You need objectivity to avoid excess enthusiasm that might blind you to the facts. Don’t let emotions cloud your business decisions.
At a minimum, you should ask the following questions to gather information about the business you are considering buying:
• History—How long has the business existed? Who founded it? How many owners has it had? Why have others sold out?
• Inventory—What is the current status of all products and materials? What is pres�ent now? What existed at the end of the previous fiscal year? Have the inventory appraised, keeping in mind that you do not have to accept the value set by the seller. The saleability and value are major points of negotiation.
• Tax returns for the past five years—Investigate how comingled the seller’s personal and business dealings had been—were business funds used to purchase personal items or trips? You and your accountant need to analyze returns to get an accurate financial net worth for the business.
• Financial statements for the past five years—Compare these with the seller’s tax returns to determine the true earning power of the business. What is the profit re�cord? Is profit increasing or decreasing? What are the true reasons for the increase or the decrease?
• Sales records—Yes, sales revenues are on the financial statements, but you need to evaluate sales by month for the past 48 months. Analyze by product line and by other factors such as cash sales versus credit. This will give you a picture of the seasonality of the business and trend lines. Do further analysis on the top 10 (or whatever break number makes sense) customers. It’s fine if the seller does not want to identify them by name—a code is fine since you are more interested in trends.
• Contracts and legal documents—This would include all leases, purchase agree�ments with suppliers, sales contracts with customers, union contracts, and employ�ment contracts. If the business involves intellectual property, such as patents, have those documents analyzed by a specialist. Real estate leases are especially sensitive since location can be a huge competitive advantage for your small business. What are the terms and length of the lease? Is it transferable? Does the landlord have the right of first refusal (i.e., does the landlord have to approve you?)? Can the lease be renewed?
• List of liabilities—You are looking for liens by creditors against any assets. There may by claims such as employee benefits or out-of-court settlements still being paid off that do not show up on financial statements that a savvy accountant can find.
• List of accounts receivable—While A/R are on the balance sheet, you need to see an aging schedule breaking them down by 30, 60, and 90+ days. The longer accounts are outstanding, the less value they have.
• List of accounts payable—You need to see a schedule just like accounts receivable because of the impact on cash flow.
• Sales taxes—When buying the assets of a business, you can avoid responsibility for the seller’s debts and liabilities—except sales taxes. If the seller has been under�reporting (or not paying) sales taxes, the state can (and will) come after you for the entire amount owed. You can sue the seller and get a settlement, but if that person has skipped the country, you are stuck. Do not pay a cent for a business until you have a clearance certificate from the state tax authority (ask your lawyer).
• Furniture, fixtures, and equipment—ff&e is a standard comparison for what you are physically buying. As with inventory, valuation, condition, age, and whether equipment is purchased or leased have an impact on value.
• Marketing—How has the seller communicated with customers? Get copies of all advertising and sales literature. This will give you insight into the image of the business and how customers perceive it.
• Suppliers—Are there dependable sources of supply for all the inventory, supplies, or materials that the company needs? Evaluate current price lists and discount schedules.
• Organizational chart of current employees—Since employees are a valuable asset, you need to understand how they work together. You need to be especially careful to see if key people are willing to remain. Are any salaries inflated, or does the seller have a relative on the payroll who does not work for the business?
• Industry and market region trends—What about present and future competition? Are new competitors or substitute materials or methods visible on the horizon? What is the condition of the area around the business? Are traffic routes or parking regulations likely to change?
• Key ties—Does the present owner have family, religious, social, or political connec�tions that have been important to the success of the business?
• Seller’s plans—Why does the present owner want to sell? Where will the owner go? What is he or she going to do? What do people (customers, suppliers, local citizens) think of the present owner and of the business?
• Buy or build—How does this business, in its present condition, compare with one that you could start and develop yourself in a reasonable amount of time?4 Are you bored with the idea of shopping for a business the old-fashioned ways, such as through classified ads and business brokers? Then go online—specifically, go to www.bizbuysell.com, a very comprehensive site for buying or selling a business that offers a database of thousands of established businesses for sale. You begin by choosing where you want your business to be. All 50 states, plus Africa, Asia, Australia/New Zealand,Canada, the Caribbean, Central America, Europe, and South America, are represented.
you choose the type of business that interests you. You can choose all business categories or pick from retail, service, manufacturing, wholesale, construction, transportation, finance, and several other miscellaneous categories.
you can also see:
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