Key Things To Remember When You Buy A Business by Ilona Albart

When you are considering business ownership, no doubt you have a variety of different small business opportunities ideas that you can consider. Now days you can choose from online businesses, franchise opportunities, existing business, starting your own business, and even MLM. Usually it is best to take a look at all the small business opportunities so you can decide which options are best for you; however, most people find that it is easier to buy a business that is already in existence.

Starting your own business has you starting from the ground up, but when you buying an existing business that is already up and running, you have the luxury of being able to check out the history of the business before you invest your money in it. If you decide that you want to purchase an existing business, there are a few things that you need to keep in mind.

Is it a Good Investment?

First of all you will need to take a close look at that small business for sale to make sure that it is a good investment before investing your money in this new venture. You will need to do some investigating on your own in order to find out whether or not this will be a good investment for you. It will be important that you check out the history of the company, the competition that the company has, the future potential of the business, and the status of where it is right now. Checking out the infrastructure of the company is important as well. Be sure that you consider the employees, the customers, the suppliers, and even the equipment that will come with the company. If the company seems to revolve around the current owner, you may want to think twice before you buy this business or the customers may actually leave with the previous owner.

Determining the Value

Once you have done your homework and decided that the business is a good investment, then you will need to determine the current value before you go own to buying a business. Remember that it is not necessarily the asking price that determines what the business is actually worth; in fact, the asking price is probably too high. Many times business owners tend to factor in all their hard work when they set a price for the business and they forget that it is the market value that is important. You should never just pay the asking price, but you should take measure to figure out what the real value of the business is before making an offer.

When you are trying to determine the value of a business before you buy it, there are a variety of different things that need to be considered. One great formula that can help you assess and estimate the value of a business is the Owner Benefit formula. This formula adds up the pre-tax profit, the owners salary, additional owner's perks, interest, and the depreciation. Once you figure this out, you can figure that the business will sell between one and three times of the figure you come up with. If you add all these factors together and come up with $200,000, then more than likely the business will sell for somewhere between $200,000 and $600,000.

For businesses that rely heavily on the seller, businesses in which the customers may leave with the seller, you can expect to pay about 1x the figure you come up with. On the other hand, businesses that have been around awhile and have a solid financial and customer base may be worth up to three times the figure that you calculate with the Owner Benefit formula. Make sure that you use these figures and study the overall market as well so you can come up with the right value of the company.

Getting the Financing

Another concern and consideration is getting the financing. More than likely you will not have the money up front to totally purchase a business and some type of financing will be necessary. While it is best to figure that you will need to pay 20-50% of the cost up front, rarely will you ever have to pay everything from out of pocket. There are actually a variety of different ways that you can get the financing that you need in order to buying an existing business.

- Seller Financing - One very popular type of financing when you are purchasing an existing business is seller financing. When sellers are willing to provide some of the financing it is a great clue that the business is worth investing in. Generally you can expect sellers to provide between 40-50% of the financing, and then you will have to come up with the rest of the money on your own. One of the best points of using this loan is that you do not have to use any of your assets as collateral. The business itself actually will act as the collateral for the loan.

- Small Business Association Financing - While the SBA does not actually give out loans, they do help people to get the loans they need by guaranteeing them. While there are some good points to using a SBA loan to help you buying a business, there are a variety of drawbacks as well. One of the biggest drawbacks is that it is extremely hard to get approved by the SBA. More than likely you will need to find a different way to finance your business, but it is an option.

- Commercial Lenders - Getting loans from commercial lenders is another way that you can finance the business that you want to purchase. There are many different commercial lenders out there; however, you will have to go through a qualifying process and you will have to pay a down payment as well. Before you apply for this type of a loan, you will want to be sure that your finances are in order and that your credit report is looking great.

If you want to start your own small business, buying one that is already in existence is usually your best choice. While there are many things to consider before you buy the business, you at least have a point of reference and a history to look at, which can help you determine whether or not the business will truly be a great investment.

Author Resource: Ilona Albert is the cofounder of the company http://www.BusinessOpportunityFinder.com which mainly deals with business opportunities , franchise and high income business opportunities. For more visit www.businessopportunityfinder.com/

MOST READ ARTICLES