To save yourself endless trouble selecting the right business to buy, prepare a checklist of likes and dislikes, wants and don’t wants. Earlier in this series, we looked at preparing a personal prospectus. Use it to screen unsuitable businesses. There could be thousands of opportunities. We could put you in a car and run you around for days looking at businessesand at the end of it, have you confused and frustrated. I’m sure you don’t have the time to waste. A checklist should be in two stages, preliminary and in depth. The object is to save time and money. Dump anything that doesn’t fit your requirements, saving the in-depth part, involving your acquisition team discussed earlier, for those which fit the bill.
- Do I have a gut feel for the business? Would I like to run it day in, day out? A while ago we had an Adult shop for sale. Fabulous profits, a growth industry with a large mail order section. We had all sorts of people, including an accountant who was keen to buy it. In the end, there were no takers. Why? What does your daughter or son answer when asked what Dad does for a living?
- Do I have the skills to run the business and make profits? The most underestimated businesses are those in the food industry. Everyone who can boil an egg thinks they’ve got it made here. It can be very profitable, but it’s highly demanding and you need eyes in the back of your head, or your profits walk out of the door. It’s amazing the places people think of to hide a chicken.
- What about the lease? Does the remaining period give time to recoup your outlay before you must negotiate a new lease?
- Profit/salary. Is it adequate to meet my requirements or will it do so in a short period? Will the business expand to meet my needs?
How will the profit be proved, and will this basis be acceptable? A seller may say the only way to verify the figures is for you to stand next to the till for two weeks and count the money or check the bank deposits and purchases. Unfortunately, many sellers try to sell this way and it is one of the most problematic. It is impossible for the seller to know accurately what his profits are if he is not running a set of books. Virtually all businesses we deal with, companies, close corporations and sole proprietorships, must supply the Receiver with balance sheets and income statements. Sellers usually say that is not a true reflection of the business. But it is the best base for a buyer to start his investigation.
- Location: Will I have to move to a new house? Will I have to travel long distances?
- Business commitment. Do you have it? Everyone needs time off, so be pragmatic about what hours you can work. You don’t want to end up forced to live on the premises.