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Buying A Small Business Opportunity

Mar 30, 2008
Buying a profitable business is often the preferred route for people that do not want to take the huge risks involved in trying to start a business on their own. 80% of all start ups fail in the first 5 years so if you find a small business that has been trading successfully for at least a few years, you cut down the risks of failure dramatically.

For the shrewd operator there are bargains to be had as many small business owners do not know how to value their business properly. I have come across instances where a small business has been sold for less than one years profit potential!

One of the best approaches is to find a seller that is disposing of the business because s/he wants to retire. Usually people in this category have let their business run down due to the fact that they have already made their money, paid off their mortgages and have a handsome pension waiting!

In the last few years they have probably only managed their business part time and are now looking forward to escaping the rat race altogether. They often have not utilised the internet to grow their business and some of them still do not use computers to help them manage their data!

Many people close to retirement are often eager to accept the first real offer they get for their business. For a young entrepreneur this is the ideal type of business to buy. If the business is already profitable running at half speed think of the potential if you were to put in twelve months of full concerted effort in and bring it back up to full speed.

When buying a small business get a decent accountant in to help you sift through the financial records and ascertain the true value of the business. This is not the price you offer! In the first instance it is far better to ask the seller what price s/he would accept and then start negotiating.

Check out the market trends for the niche the business occupies. You do not want to enter a declining market. Check out the competitors and find out what they are up to. This is the ideal time to talk to them as they are unlikely to be so forthcoming once they know that you have bought the business.

When you are valuing the stock, make sure you put zero value on all stock that has not moved for six months. Get in touch with the suppliers and ask them if they would be happy to carry on supplying goods at the same prices and terms.

Speak to the employees and find out what the think of the business. What are their plans in the business and are there any that you can let go without causing a rift. When a small business has been operating for years sometimes close friends and family members are employed that really do not contribute to the business at all.

Make initial contact with the main customers and find out how they are faring. The last thing you want to do is to buy a business just before the largest customer goes bankrupt! If the largest customers are thriving then chances for expansion are high.

Carry out a survey of the premises to ensure that there are no unexpected bills in the pipeline. Make sure there are no outstanding legal matters that still have to be dealt with and ensure that you get full rights over the trademark and other intellectual property when you purchase the business.

Only once you have carried out all the checks are you ready to consider putting an offer in. If the offer gets accepted then this is where the real fun begins.
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