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Tips for buying a business

It’s that time of the year where we tend to examine our corporate-world life and end up saying, "You know, if I had my own business I wouldn’t have to put up with … ."

By PAUL TULENKO
Scripps Howard News Service – Casper Star Tribune

This is great thinking; I urge you to look around to see what you could do to better yourself. However, if you consider purchasing an existing business, you need special tools to not end up with the granddaddy of all white elephants.

The business listed "For Sale" in the Sunday newspaper may be your ticket to fame and fortune, but most of us aren’t qualified to determine this. You need expert help, so begin your search by checking the yellow pages to find business brokers in your area.

There are multiple reasons why a business is for sale, and most of these have red flags waving. The most common reason given for selling is owner retirement. Believe this one and I have a great deal on the Brooklyn Bridge for you. Yes, the owner wants to retire … on your dollar. So what can you do about getting the facts you need?

— Financial: Obtain the business tax records for the past five years. If the business is a sole proprietorship, ask for a copy of the business portion of the seller’s tax records for the same period. Ask for copies of the standard financial reports; a current Financial Position Statement, and Profit & Loss and Funds Source & Application for the last five years. Get a current list of all assets and liabilities of the business as well as a current list of accounts payable and receivable. Ask if there is a list of projected capital expenditures. Hire a CPA to review these for you. If you cannot get this information, look elsewhere no matter how great the deal seems.

— Marketing: Chances of the seller having a current marketing plan are zero, so you have to do the work. Buy one of the marketing software packages and fill-in-the-blanks. Yes, it’s a pain, but you need to know if there is really a market or not. You also need to know what the present customers think of the business as it is now.

— People: Carefully examine the present organizational structure including salaries, perks and other benefits with the aim of possibly tightening the organization. Ask if the current owner will provide consultation services until you learn the business. Also let the present owner know he or she must sign a non-compete agreement.

— Location: The real estate people have it right: location, location, location. A location change may be necessary to make the business viable. If moving is not currently advisable, determine when it absolutely must happen and how much it will cost you. Factor this into your decision.

— Inventory: What is the current relationship with suppliers? Who are they, what do they supply, who are their competitors — and most important, what is owed to these people right now? What will it cost to have a fire-sale to get rid of older products (and there will be older products)?

Use all of the information you have gathered to develop a three year projection of sales, expenses and operating costs, debt costs and profit. Use your CPA for this, and do it right. If it doesn’t look right, bail out. It’s your future.

Tulenko is a Small Business Success Consultant based in New Mexico.

http://www.casperstartribune.net/articles/2003/12/02/news/business/57e961fd12f5b47e87256df000572996.txt

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