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• How to Buy a Business
• 25 Things to Consider
• Determining a Fair Price
• The Art of the Deal
• Common Mistakes to Avoid

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When most people think of starting a business, they think of beginning buysellbiz  scratch--developing your own ideas and building the company buysellbiz  the ground up. But starting buysellbiz  scratch presents some distinct disadvantages, including the difficulty of building a customer base, marketing the new business, hiring employees and establishing cash flow...all without a track record or reputation to go on.
Buying an Existing Business
In most cases, buying an existing  buying businesses  is less risky than starting buysellbiz  scratch. When you buy a  buying businesses , you take over an operation that's already generating cash flow and profits. You have an established customer base, reputation and employees who are familiar with all aspects of the  buying businesses . And you don't have to reinvent the wheel--setting up new procedures, systems and policies--since a successful formula for running the  Australia  businesses  has already been put in place.
On the downside, Australia  a businesses  is often more costly than starting buysellbiz  scratch. However, it's easier to get financing to buy an existing  Australia  businesses  than to start a new one. Bankers and investors generally feel more comfortable dealing with a  Australia  businesses  that already has a proven track record. In addition, Australia  a  Australia  businesses  may give you valuable legal rights, such as patents or copyrights, which can prove very profitable. Of course, buy sell biz 's no such thing as a sure thing--and Australia  an existing  Australia  businesses  is no exception. If you're not careful, you could get stuck with obsolete inventory, uncooperative employees or outdated distribution methods. To make sure you get the best deal when Australia  an existing  Australia  businesses , be sure to follow these steps.
The Right Choice
Australia  the perfect  Australia  businesses  starts with choosing the right type of  Australia  businesses  for you. The best place to start is by looking at an industry with which you're both familiar and which you understand. Think long and hard about the types of  Australia  businesses es you're interested in and which best match your skills and experience. Also consider the size of  Australia  businesses  you are looking for, in terms of employees, number of locations and sales. Next, pinpoint the geographical area where you want to own a  Australia  businesses . Assess labor pool and costs of doing  Australia  businesses  in that area, including wages and taxes, to make sure they're acceptable to you. Once you've chosen a region and an industry to focus on, investigate every  buying businesses  in the area that meets your requirements. Start by looking in the local newspaper's classified section under " buying businesses  Opportunities" or " buying businesses es for Sale". You can also run your own "Want to Buy" ad describing what you are looking for. Remember, just because a  buying businesses  isn't listed doesn't mean it isn't for sale. Talk to  buying businesses  owners in the industry; many of them might not have their  buying businesses es up for sale but would consider selling if you made them an offer. Put your networking abilities and  buying businesses  contacts to use, and you're likely to hear of other  buying businesses es that might be good prospects.
Contacting a  buying businesses  broker is another way to find  buying businesses es for sale. Most brokers are hired by sellers to find buyers and help negotiate deals. If you hire a broker, he or she will charge you a commission--typically 5 to 10 percent of the purchase price. The assistance brokers can offer, especially for first-time buyers, is often worth the cost. However, if you are really trying to save money, consider hiring a broker only when you are near the final negotiating phase. Brokers can offer assistance in several ways.

• Prescreening  buying businesses es for you. Good brokers turn down many of the  buying businesses es they are asked to sell, whether because the seller won't provide full financial disclosures or because the  buying businesses  is overpriced. Going through a broker helps you avoid these bad risks.
• Helping you pinpoint your interest. A good broker starts by finding out about your skills and interests, then helps you select the right  buying businesses  for you. With the help of a broker, you may discover that an industry you had never considered is the ideal one for you.
• Negotiating. The negotiating process is really when brokers earn their keep. They help both parties stay focused on the ultimate goal and smooth over any problems that may arise.
• Assisting with paperwork. Brokers know the latest laws and regulations affecting everything buysellbiz  licenses and permits to financing and escrow. They also know the most efficient ways to cut through red tape, which can slash months off the purchase process. Working with a broker reduces the risk that you'll neglect some crucial form, fee or step in the process.

A Closer Look
Whether you use a broker or go it alone, you will definitely want to put together an "acquisition team"--your banker, accountant and attorney--to help you. These advisors are essential to what is called "due diligence", which means reviewing and verifying all the relevant information about the  buying businesses  you are considering. When due diligence is done, you will know just what you are buying and buysellbiz  whom. The preliminary analysis starts with some basic questions. Why is this  buying businesses  for sale? What is the general perception of the industry and the particular  buying businesses , and what is the outlook for the future? Does--or can--the  buying businesses  control enough market share to stay profitable? Are raw materials needed in abundant supply? How have the company's product or service lines changed over time?
You also need to assess the company's reputation and the strength of its  buying businesses  relationships. Talk to existing customers, suppliers and vendors about their relationships with the  buying businesses . Contact the Better  buying businesses  Bureau, industry associations and licensing and credit-reporting agencies to make sure buy sell biz  are no complaints against the  buying businesses .
If the  buying businesses  still looks promising after your preliminary analysis, your acquisition team should start examining the  buying businesses 's potential returns and its asking price. Whatever method you use to determine the fair market price of the  buying businesses , your assessment of the  buying businesses 's value should take into account such issues as the  buying businesses 's financial health, its earnings history and its growth potential, as well as its intangible assets (for example, brand name and market position).
To get an idea of the company's anticipated returns and future financial needs, ask the  buying businesses  owner and/or accountants to show you projected financial statements. Balance sheets, income statements, cash flow statements, footnotes and tax returns for the past three years are all key indicators of a  buying businesses 's health. These documents will help you conduct a financial analysis that will spotlight any underlying problems and also provide a closer look at a wide range of less tangible information.
Following is a checklist of items you should evaluate to verify the value of a  buying businesses  before making a decision to buy:
1. Inventory. Refers to all products and materials inventoried for resale or use in servicing a client. Important note: You or a qualified representative should be present during any examination of inventory. You should know the status of inventory, what's on hand at present, and what was on hand at the end of the last fiscal year and the one preceding that. You should also have the inventory appraised. After all, this is a hard asset and you need to know what dollar value to assign it. Also, check the inventory for salability. How old is it? What is its quality? What condition is it in? Keep in mind that you don't have to accept the value of this inventory: it is subject to negotiation. If you feel it is not in line with what you would like to sell, or if it is not compatible with your target market, then by all means bring those points up in negotiations.
2. Furniture, fixtures, equipment and building. This includes all products, office equipment and assets of the  buying businesses . Get a list buysellbiz  the seller that includes the name and model number of each piece of equipment. Then determine its present condition, market value when purchased versus present market value, and whether the equipment was purchased or leased. Find out how much the seller has invested in leasehold improvements and maintenance in order to keep the facility in good condition. Determine what modifications you'll have to make to the building or layout in order for it to suit your needs.
3. Copies of all contracts and legal documents. Contracts would include all lease and purchase agreements, distribution agreements, subcontractor agreements, sales contracts, union contracts, employment agreements and any other instruments used to legally bind the  buying businesses . Also, evaluate all other legal documents such as fictitious  buying businesses  name statements, articles of incorporation, registered trademarks, copyrights, patents, etc. If you're considering a  buying businesses  with valuable intellectual property, have an attorney evaluate it. In the case of a real-estate lease, you need to find out if it is transferable, how long it runs, its terms, and if the landlord needs to give his or her permission for assignment of the lease.
4. Incorporation. If the company is a corporation, check to see what state it's registered in and whether it's operating as a foreign corporation within its own state.
5. Tax returns for the past five years. Many small  buying businesses  owners make use of the  buying businesses  for personal needs. They may buy products they personally use and charge them to the  buying businesses  or take vacations using company funds, go to trade shows with their spouses, etc. You have to use your analytical skills and those of your accountant, to determine what the actual financial net worth of the company is.
6. Financial statements for the past five years. Evaluate these statements, including all books and financial records, and compare them to their tax returns. This is especially important for determining the earning power of the  buying businesses . The sales and operating ratios should be examined with the help of an accountant familiar with the type of  buying businesses  you are considering. The operating ratios should also be compared against industry ratios which can be found in annual reports produced by Robert Morris & Associates as well as Dun & Bradstreet.
7. Sales records. Although sales will be logged in the financial statements, you should also evaluate the monthly sales records for the past 36 months or more. Break sales down by product categories if several products are involved, as well as by cash and credit sales. This is a valuable indicator of current business activity and provides some understanding of cycles that the business may go through. Compare the industry norms of seasonal patterns with what you see in the business. Also, obtain the sales figures of the 10 largest accounts for the past 12 months. If the seller doesn't want to release his or her largest accounts by name, it's fine to assign them a code. You're only interested in the sales pattern.
8. Complete list of liabilities. Consult an independent attorney and accountant to examine the list of liabilities to determine potential costs and legal ramifications. Find out if the owner has used assets such as capital equipment or accounts receivable as collateral to secure short-term loans, if buy sell biz  are liens by creditors against assets, lawsuits, or other claims. Your accountant should also check for unrecorded liabilities such as employee benefit claims, out-of-court settlements being paid off, etc.
9. All accounts receivable. Break them down by 30 days, 60 days, 90 days and beyond. Checking the age of receivables is important because the longer the period they are outstanding, the lower the value of the account. You should also make a list of the top 10 accounts and check their creditworthiness. If the clientele is creditworthy and the majority of the accounts are outstanding beyond 60 days, a stricter credit collections policy may speed up the collection of receivables.
10. All accounts payable. Like accounts receivable, accounts payable should be broken down by 30 days, 60 days, and 90 days. This is important in determining how well cash flows through the company. On payables more than 90 days old, you should check to see if any creditors have placed a lien on the company's assets.
11. Debt disclosure. This includes all outstanding notes, loans and any other debt to which the business has agreed. See, too, if buy sell biz  are any business investments on the books that may have taken place outside of the normal area. Look at the level of loans to customers as well.
12. Merchandise returns. Does the business have a high rate of returns? Has it gone up in the past year? If so, can you isolate the reasons for returns and correct the problem(s)?
13. Customer patterns. If this is the type of business that can track customers, you will want to know specific characteristics concerning current customers, such as: How many are first-time buyers? How many customers were lost over the past year? When are the peak buying seasons for current customers? What type of merchandise is the most popular?
14. Marketing strategies. How does the owner obtain customers? Does he or she offer discounts, advertise aggressively, or conduct public-relations campaigns? You should get copies of all sales literature to see the kind of image that is being projected by the business. When you look at the literature, pretend that you are a customer being solicited by the company. How does it make you feel? This can give you some idea of how the company is perceived by its market.
15. Advertising costs. Analyze advertising costs. It is often better for a business to postpone profit at year-end until the next year by spending a lot of money on advertising during the last month of the fiscal year.
16. Price checks. Evaluate current price lists and discount schedules for all products, the date of the last price increase, and the percentage of increase. You might even go back and look at the previous price increase to see what percentage it was and determine when you are likely to be able to raise prices. Here again, compare what you see in the business you are looking at, with standards in the industry.
17. Industry and market history. You should analyze the industry as well as the specific market segments of the business targets. You need to find out if sales in the industry, as well as in the market segment, have been growing, declining, or have remained stagnant. This is very important to determine future profit potential.
18. Location and market area. Evaluate the location of the business and the market area surrounding it. This is especially important to retailers, who draw the majority of their business buysellbiz  the primary trading area. You should conduct a thorough analysis of the business's location and the trading areas surrounding the location including economic outlook, demographics and competition. For service businesses, get a map of the area covered by the business. Find out, based on the locations of various accounts, if buy sell biz  are any special requirements for delivering the product, or any transportation difficulties encountered by the business in getting the product to market.
19. Reputation of the business. The image of the business in the eyes of customers and suppliers is extremely important. As we mentioned, the image of the business can be an asset, or a liability. Interview customers, suppliers and the bank, as well as the owners of other businesses in the area, to determine the reputation of the business.
20. Seller-customer ties. You must find out if any customers are related or have any special ties to the present owner of the business. How long has any such account been with the company? What percentage of the company's business is accounted for by this particular customer or set of customers? Will this customer continue to purchase buysellbiz  the company if the ownership changes?
21. Inflated salaries. Some salaries may be inflated or perhaps the current owner may have a relative on the payroll who isn't working for the company. All of these possibilities should be analyzed.
22. List of current employees and organizational chart. Current employees can be a valuable asset, especially key personnel. Evaluate the organizational chart to understand who is responsible to whom. You must also look at the management practices of the company and know the wages of all employees and their length of employment. Examine any management-employee contracts that exist aside buysellbiz  a union agreement, as well as details of employee benefit plans; profit-sharing; health, life and accident insurance; vacation policies; and any employee-related lawsuits against the company.
23. OSHA requirements. Find out if the facility meets all occupational safety and health requirements and whether it has been inspected. If you feel that the seller is "hedging" on this and you see some things you feel might not be safe on the premises, you can ask the Occupational Safety and Health Administration (OSHA) to help you with an inspection. As a prospective buyer of a business that may come under OSHA scrutiny, you need to be certain that you are not buying an unsafe business. Some sellers may perceive your asking for OSHA's help as a dirty trick. But you must realize that as a prospective, serious buyer, you need to protect your position.
24. Insurance. Establish what type of insurance coverage is held for the operation of the business and all of its properties as well as who the underwriter and local company representative is, and how much the premiums are. Some businesses are underinsured and operating under potentially disastrous situations in case of fire or a major catastrophe. If you come into an underinsured operation, you could be wiped out if a major loss occurs.
25. Product liability. Product liability insurance is of particular interest if you're purchasing a manufacturing company. Insurance coverage can change dramatically buysellbiz  year to year, and this can markedly affect the cash flow of a company.
No decision is more emotionally charged than deciding upon a price for an existing business. The owner has one idea of how much the business is worth, while the buyer will typically have another viewpoint. Each party is dealing buysellbiz  a different perspective and usually the one who is best prepared will have the most leverage when the process enters the negotiating stage.
Keep in mind that most sellers determine the price for their business arbitrarily or through a special formula that may apply to that industry only. Either way, buy sell biz  usually aren't very many solid facts upon which to base their decisions.
Price is a very hard element to pin down and, buy sell biz fore, is for the buyer to assess. Buy sell biz  are a few factors that will influence price, such as economic conditions. Usually, businesses sell for a higher price when the economy is expanding, and for a much lower price during recessions. Motivation also plays an important factor. How badly does the seller want out? If the seller has many personal financial problems, you may be able to buy the business at a discount rate by playing the waiting game. On the other hand, you should never let the seller know how badly you want to buy the business. This can affect the price you pay adversely.
Beyond these factors, you can determine the value of a business using several different methods discussed below.
Multipliers
Simply put, some owners gauge the value of their business by using a multiplier of either the monthly gross sales, monthly gross sales plus inventory, or after-tax profits. While the multiplier formula may seem complex and quite accurate to begin with, if you delve a little deeper and look at the components used to arrive at the stated value, buy sell biz  is actually very little to substantiate the arrived at price.
Most of the multipliers aren't based on fact. For example, individuals within a specific industry may claim that certain businesses sell at three times their annual gross sales, or two times their annual gross sales plus inventory. Depending on which formula the owner uses, the gross sales are multiplied by the appropriate number, and a price is generated.
For instance, if the business was earning $100,000 a year and the seller was using a formula in which the multiple of gross sales was 30 percent based on industry averages, then he or she would generate a price using the following equation:
100,000 x .30 = $30,000
Of course, you can check the monthly sales figure by looking at the income statement, but is the multiplier an accurate number? After all, it has been determined arbitrarily. Buy sell biz  usually hasn't been a formal survey performed and verified by an outside source to arrive at these multipliers.
In addition, even if the multiplier was accurate, buy sell biz  is such a large spread between the low and high ends of the range that it really just serves as a ballpark figure. This is true whether a sales or profit multiplier is used. In the case of a profit multiplier, the figure generated becomes even more skewed because businesses rarely show a profit due to tax reasons. Buy sell biz fore, the resulting value of the business is either very small or the owner has to use a different profit factor to arrive at a higher price.
Don't place too much faith in multipliers. If you run across a seller using the multiplier method, use the price only as an estimate and nothing more.
Book Values
This is a fairly accurate way to determine the price of a business, but you have to exercise caution using this method. To arrive at a price based on the book value, all you have to do is find out what the difference is between the assets and liabilities of a company to arrive at its net worth. This has usually been done already on the balance sheet. The net worth is then multiplied by one or two to arrive at the book value.
This might seem simple enough. To check the number, all you have to do is list the company's assets and liabilities. Determine their value, arrive at the net worth, and then multiply that by the appropriate number.
Assets usually include any unsold inventory, leasehold improvements, fixtures, equipment, real estate, accounts receivable, and supplies. Liabilities can be anything. They might even include the business itself. Usually, though, you want to list any unpaid debts, uncollected taxes, liens, judgments, lawsuits, bad investments--anything that will create a cash drain upon the business.
Now here is where it gets tricky. In the balance sheet, fixed assets are usually listed by their depreciated value, not their replacement value. Buy sell biz fore, buy sell biz  really isn't a true cost associated with the fixed assets. That can create very inconsistent values. If the assets have been depreciated over the years to a level of zero, buy sell biz  isn't anything on which to base a book value.
Return on Investment
The most common means of judging any business is by its return on investment (ROI), or the amount of money the buyer will realize buysellbiz  the business in profit after debt service and taxes. However, don't confuse ROI with profit. They are not the same thing. ROI is the amount of the business. Profit is a yardstick by which the performance of the business is measured.
Typically, a small business should return anywhere between 15 and 30 percent on investment. This is the average net in after-tax dollars. Depreciation, which is a device of tax planning and cash flow, should not be counted in the net because it should be set aside to replace equipment. Many novice business owners will look at a financial statement and say, "Buy sell biz 's $5,000 we can take off for depreciation." Well, buy sell biz 's a reason for a depreciation schedule. Eventually equipment does wear out and must be replaced, and it sometimes has to be replaced much sooner than you expect. This is especially true when considering a business with older equipment.
The wisdom of buying a business lies in its potential to earn money on the money you put into it. You determine the value of that business by evaluating how much money you are going to earn on your investment. The business should have the ability to pay for itself. If it can do this and give you a return on your cash investment of 15 percent or more, then you have a good business. This is what determines the price. If the seller is financing the purchase of the business, your operating statement should have a payment schedule that can be taken out of the income of the business to pay for it.
Does a 15-percent net for a business seem high? Everybody wants to know if a business makes two, three, or 10 times profit. They hear price-earning ratios tossed around, and forget that such ratios commonly refer to companies listed on the stock exchange. In small business, such ratios have limited value. A big business can earn 10 percent on its investment and be extremely healthy. The big supermarkets net two or three percent on their sales, but this small percentage represents enormous volume.
Small businesses are different. The small business should typically earn a bigger return because the risk of the enterprise is higher. The important thing for you, as a buyer of a small business, is to realize that regardless of industry practices for big business, it's the ROI that you need to worry about most. Is it realistic? If the price is realistic for the amount of money you have to invest, then you can consider it a viable business.
Capitalized Earnings
Valuing a business based on capitalized earnings is similar to the return-on-investment method of assessment, except normal earnings are used to estimate projected earnings, which are then divided by a standard capitalization rate. So what is a standard capitalization rate?
The capitalization rate is determined by learning what the risk of investment in the business would be in comparison to other investments such as government bonds or stock in other companies. For instance, if the rate of return on investment in government bonds is 18 percent, then the business should provide a return of 18 percent or better on the investment into it. To determine the value of a business based on capitalized earnings, use the following formula:
Projected Earnings x Capitalization Rate = Price
So, after analyzing the market, the competition, the demand for the product, and the organization of the business, you determine that projected earning could increase to $25,000 per year for the next three years. If your capitalization rate is 18 percent, then the value of the business would be:
$25,000 / .18 = $138,888
Generally, a good capitalization rate for buyouts will range between 20 to 40 percent. If the seller is asking much more than what you've determined the capitalized earnings to be, then you will have to try and negotiate a lower price.
Intangible Value
Some business owners try to sell goodwill as an asset. Normally, in everyday accounting procedures, most companies put down perhaps one dollar as the value of goodwill. Buy sell biz  is no doubt that goodwill has value, particularly if the business has built up a regular trade and a strong base of accounts. But it is the financial value of the accounts, not their psychological value, that should be placed on any financial statements.
Goodwill as such is not an asset. You as a buyer would assess the business based on the return on investment. Certain rules of the game may change when you enter the fields of acquisition and merger. Suppose you buy out your competition, merge all your facilities, and double your volume. Now the labor and overhead factors are much lower. Thus, even if the seller was losing perhaps 5 percent a year, if you bring them into your company, which is making 15 percent a year, it might allow you to increase sales and end up making 20 percent.

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