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Advice for Buying an Established Small Business – Does your business due diligence checklist confirm the business sellers’ financial claims?
| Guest post by: Lee Artis |
Article Overview: When buying an established small business, it is imperative to have a business due diligence checklist to ensure the sellers' financial claims are accurate. Remember to take your time and do not be persuaded to rush through any part of your due diligence checklist. This is a big decision and your future financial situation is at stake. If you have covered absolutely everything at every stage of the process there will be far less room for mistakes or even regrets. Educate yourself on buying an established small business by talking to other business owners and professionals who have had years experience and can offer sound, honest information to help you make an informed decision about your future.
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Advice for Buying an Established Small Business – Does your business due diligence checklist confirm the business sellers’ financial claims?
Are the sellers' financial claims genuine?
When you are considering buying an established small business, the seller must allow you to view their financial information in one form or another, but how do you know if they are accurate? To verify the sellers' financial claims, the first test is to ask them to substantiate the figures. If the seller cannot or will not back up the information with evidence - politely walk away - do not waste your time. You must be able to thoroughly research and investigate all the information to make certain you are not getting sold someone else's problem.
Take into account, there are many variables to calculate when buying an established small business, a well planned and precise due diligence checklist pinpointing each and every stage will be essential to guarantee nothing is overlooked.
On some occasions you may find the seller has a different figure to what is actually on the books. There may be a compelling reason for this - perhaps there is a percentage of cash which is not always recorded and not relied upon. It is up to you to look into this to ensure you understand why this occurs, what the actual dollar amount is and when it is received.
However, do not take anything at face value. The saying "You get what you inspect not what you expect" applies here.
Be mindful - Most sellers are good honest people some however are extremely devious and will do almost anything to off load a failing small business or exaggerate the true value of the business.
In addition, I have listed just a few of the areas to inspect (at the 2nd stage) when buying an established small business - fully inspect the business premises, if it is a leasehold business the lease will require checking plus:
- Any plant and equipment,
- A comprehensive inspection of the stock
- Request any supplier or service agreements etc ,
The small business due diligence process can be lengthy and a very time consuming task for you and the vendor. To help you fast track the preliminary viability of a business and establish a better understanding of the day to day operations, it will be important for you, the business buyer, to treat it like any other business process and ensure the inclusion of a well structured due diligence checklist covering each and every stage of the investigation period. This way you can quickly assess a business;nothing is over looked and you can then confidently move to the next stage or the next established small business.
Remember to take your time and do not be persuaded to rush through any part of your due diligence checklist. This is a big decision and your future financial situation is at stake. If you have covered absolutely everything at every stage of the process there will be far less room for mistakes or even regrets.
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About the Author: Lee Artis RSS for Lee's articles - Visit Lee's website Lee has 12 years experience on both sides of the fence selling and valuing businesses of all types and sizes for her clients as well as acquiring corporate businesses as a buyer's agent. Prior to her successful business sales career she had an entrepreneurial background and built several successful small businesses. Her last business was the manufacture and distribution of a range of clothing for women and children Lee had manufactured in Fiji for distribution throughout Australia. Her passion is small business and developing innovative, internet centered commercial businesses of the future. Lee is a visionary and has the ability to see new and creative ways to transform old fashioned, traditional businesses. Lee's industry experience gives her insight into a new way of buying and selling businesses without the expensive involvement of business brokers. Her belief is so strong that she joined Terry McDonald to write this series of books and published articles to equip people with the skills they need to buy or sell a business themselves. For the most cost effective, comprehensive, easy to use DIY Kit (complete with detailed guide and highly regarded Small Business Valuation Software Tool) - For Business Buyers, Business Owners and Business Advisors visit The Bizbuy Kit or The Bizsale Kit Click here to visit Lee's website   Tips for Buying a Business Tips for Selling a Business |
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