Essential Benchmarks to Consider When Buying a Business For Sale - By: Richard K Parker

Make sure that you pay attention to every step in the exploration process when you are considering buying a business for sale. Don't go forward to the next step until you have finished each of the preceding ones, as shortcutting is not advised. Make sure that you allocate enough time to really get into the business background, so that you don't uncover any horror stories when you actually take over.

A lot of information can be revealed before you even talk to a prospective seller. One of the most important questions you must ask yourself before you go forward is what kind of enthusiasm you possess for the type of business you have your eye on. Do you really want to be involved in that industry and does it represent an area that you truly want to be engrossed in? Unless you intend to be a completely "hands-off" owner and are therefore taking considerable additional steps to ensure your safety, it is far better for you to be involved in an industry that you have a good feeling for, if not a considerable level of enthusiasm.

All documentation must be inspected when you are conducting a due diligence process.

* Financials: including profit and loss statements, balance sheets, reconciliation documents, payroll records, tax reports. If the seller claims a considerable amount of "cash sales" but cannot point to these within tax declarations, then they cannot be counted and you must ignore them.

* Employee records: look for information on individual attendance, the pay scales, length of service and employee behavior.

* Licenses: including federal, state, city, county as appropriate, plus any certification licenses you must possess to operate the business. Be prepared to consult records independently to see if there have been any discrepancies or problems in the past.

* Equipment records: including age, depreciation, maintenance, replacement cost, any required inspections.

* Inventory records: including turnover, condition, re-saleability.

* Supplier contracts: including portability, alternatives and goodwill.

* Property records: including rental agreements and portability - the latter element is of considerable importance.

If you find that all records, licenses, contracts and agreements are in order and are workable for you going forward, you may be wondering how to arrive at a good value when you buy business assets. There are many different ways of looking at this. Some of the methods used to calculate include:

* Asset-based multipliers, where a total value of the assets are used to determine a value.

* Rule of thumb, where industry benchmarks are used to establish the value(not recommended).

* Revenue-based multipliers, where a percentage or a multiple of the monthly or annual revenue is used. Again not recommended.

* Cash flow multiplier, where a business owner's profit level is added to his or her salary and any other perks and certain expenses are deducted. This is most often the most appropriate way of valuing the business for sale.

While there are many documents and figures that can be proven to backup an owner's claim, or not as the case may be, you need to take into account significant facts. What is the age and reputation of the business, the level of competition expected, its physical location in many cases, the legal structure of the business, the quality of the premises and/or the difficulty in obtaining a new lease. When it comes to a business for sale, all will help you to determine whether you should buy a business like this, or not.

About the Author

Richard Parker is the President and founder of the prestigious Diomo Corporation - The Business Buyer Resource Center. His celebrated materials, seminars and consulting have encouraged thousands of aspiring business buyers from around the World to pursue their dream to buy a business. Want to discover more about impressive business buying success strategies that really work, then look no further than=> http://www.diomo.com/

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