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5 Tips to Buying the Right Business

Written by: Greg Caruso

Article Overview: Buying a business in Maryland or any other location and valuing a business for purchase is a major life decision that needs to be carried out methodically and thoroughly. If you are thinking about buying a business in Maryland or elsewhere make sure you follow the steps outlined below.

5 Tips to Buying the Right Business

Buying a business in Maryland or any other location and valuing a business for purchase is a major life decision that needs to be carried out methodically and thoroughly. If you are thinking about buying a business in Maryland or elsewhere make sure you follow the steps outlined below.


1. Understand and Know What You do Well and Like

You must really look at the activities you like to do and find a business that allows you to do them. For instance some people want customers to come to them. A retail store may work well for them. On the other hand some owners would loose their minds staying in a store all day; perhaps something with outside sales will work for them. Are you a people person, a thinker, a leader, or a salesperson? Do you like steady hours, flexibility etc. How much money do you have to purchase with? How much money must you make every week?

Remember the process of buying the business is not the same as running one. Do everything possible to make sure you buy one you will love running.


2. Make a Comprehensive Search for a Business

Make sure you know how to look for a business. Don’t just go to one source but really check multiple reliable sources to find the business that is right for you. Systematize your notes so you know what you looked at. Make sure you compare your strengths and weaknesses with the day-to-day tasks of running the business.


3. Understand and Value the Business Properly

Understand the basic financial techniques to value a business; it’s cash flow and other assets. Know how to prepare a basic business plan in order to make projections into the future.

Understand how the business is getting its customers. Know how it delivers goods and services. Know the cash flow and how you will keep the current cash flow and then grow the cash flow.


4. Know how to structure and finance a business

Have a basic understanding of how the business valuation and related cash flow tie together. Make sure you know a number of possible ways to put a transaction together to overcome different risks. Understand what may be financed by a conventional bank loan, a SBA loan or seller take-back. Understand how to take your outline deal and putting it into a final enforceable contract.

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5. Perform Due Diligence Thoroughly and Correctly

Know what to look for when investigating a company. Know how to tie accounting records into source documents. Understand inventory, equipment, vehicle titling and other problems. Understand what should occur at settlement. Make sure you are getting what you have agreed to pay for.


Bonus Tip

Recognize that the Broker almost always represents the Seller. In commercial transactions if the Seller is paying the brokerage fee (even for “your” broker) he almost always represents the Seller. For most small business purchases you, the buyer, will go through most of the process on your own or you need to find and pay your own experts. Make sure you know enough to select the right business, the right experts, and negotiate a fair deal.

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  Buying a Business FAQs

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