Friday, March 21, 2014

What You Should Look for When Buying a Business

According to Forbes, if you're planning on buying a business, one of the most important things to consider is net cash flow. "It’s like taking the pulse of a firm’s financial health," they explain. It's easy to evaluate businesses on surface level profit, yet this can conceal both unexpected booms, as well as future problems. A business could show a $500,000 yearly profit, yet a major client failed to renew their contract two months ago, which would only show up in an evaluation of net cash flow.
Are you thinking about buying an existing business? Buying a business can be a safer investment than a start-up by itself. If the company is established, you know they have a decent business plan, an existing customer base, the necessary equipment and supplies in place, and potentially a better chance at surviving and being profitable. However, it's not a 0% risk opportunity. Here are several tips so that you know what to look for when buying a business.

Make Sure You're Not Buying Their Debt
What to look for when buying a florida business

  • When it comes to a business sale, you technically want to buy the assets, not the business stocks. If they owe money, you won't assume liability by buying assets. Your tax basis will also be better.
  • Make sure to ask about payroll and sales taxes. Many states will come to you for owed taxes or payroll even if you've bought assets. The business owner should be current on their payments, and the state tax authority can issue a clearance letter for your assurance, as well.
Look for a Good Deal, Not Just an Easy Buy
  • Many industry experts have predicted that there will be many business investment opportunities over the next few years, as baby boomers retire and look to sell. One way to make sure the business isn't on the way out, too, is to talk to others in a similar industry or market. This will give you an idea of whether the market is still strong enough for this company, and help you make sure there aren't other reasons for selling it right now.
  • Don't rush into a decision. If you can't do the due diligence before it "has" to be bought, let the opportunity pass, because there's likely a dark lining to it that you're not seeing yet.
Buying Businesses You Understand, is Ideal

If possible, your best bet is to invest in a field you have some prior experience in. This will help you more accurately gauge the business's current worth, and it will make taking over the company easier. For people uninitiated to industries, there is a steep learning curve.
Are you thinking about investing in a business? Let us know in the comments.

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