Buying A Business – What Buyers Look For
Understanding how long a business has been in operating is an important consideration
A business with a long track record means there are good reasons for that business to be operating. It will be well known in the area, and people will be used to patronizing the business or using its services. The longer it has been in operation, generally, the better the business. They will also want to know about the employee situation, especially any key employees.
They also want to know how long the seller has owned the business
Owning a business is primarly about one thing, making a reasonable income and return on investment. People don't operate a business for very long without making money. Buyers will want to know about a sellers experience and compare it against a sellers success. The longer a present owner has owned and operated a business, the more likely he or she has been successful.
Why are you selling your business?
Buyers will want an honest and clear answer to why are you selling. It may be health reasons, retirement, burn out, divorce, partnership split, etc. It pays to be truthful and congruent in your answer. Failing to be honest will ultimately sideline your deal or lead to offers that will be rejected by the seller.
Books and Accurate Accounting
The fiancial records and book keeping are important indicators of a businesses historical track record and brand equity. Can I buyer a buyer continue to run the business without suffering a financial setback? There is a major difference compared to the businesses financials reflected by tax records and your true financials. Tax records will never present your business in its best light. If your accountant is doing his job and advising a seller well, you may even be reporting a loss. Recasting the financials showing "True Net Income" includes add backs such as non-cash items such as depreciation, business use of home and vehicles, rent adjustment, etc. Your account or advisor will be able to assist you in this process. Buyers will want to see the income tax return. However, a seller will want to present the recast of True Net Income first.
Buyers and their advisors will only account for reported income
Buyers will only consider reported income. We all know that a business sometimes do not report their entire income. As such we also know that not reporting income is against the law. The "underground economy" is very well documented where billions of dollars go unaccounted. Wise buyers will ignore seller claims of skim or unreported income since there is no way of proving skim. Sellers who accurately report their sales revenue may incur paying more taxes. However, the business will usually sell for a higher value due to showing more income. All buyers calculate that a business will sell for less than the listed price. sellers need to expect that buyer will want to negoticate favorable price and terms. This is where a good busines broker will be worth his salt. When selling a business, pricing and terms is part art and science as it is fact and financial history.
Free Videos and Training "What You Should Know Before You Sell Your Minnesota Business. Minnesota Businesses For Sale Videos and Training JeJeff Slaton is a 20 year vetern Business Broker, Author and Public Speaker.
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