Why It Might Be An Excellent Time To Buy A Business | Kong Posh

Why It Might Be An Excellent Time To Buy A Business | Kong Posh

Posted in Business Trend | June 12th, 2010

Despite a slumping economy, low sales, high unemployment and a banking crisis, this actually might be a good time to consider buying a business. The reason is quite simple: it’s a buyer’s market, which means the environment is ideal to own a business.

Buy business trends are on the upswing, with sellers relaxing their purchase business terms because there are fewer qualified buyers, third-party financing becoming near impossible, and opportunities to negotiate a really good deal for a business for sale aplenty.

However, the receptive climate for purchasing a business doesn’t mean that you should advance without having key buy business essentials in place. It’s very easy for enthusiastic, yet inexperienced buyers, to pay too much for a business for sale that has no chance for survival, even in good times.

First and foremost, it’s important to know the purchase business climate before even considering whether to own a business. Currently, the buying a business market is being crippled by the economy and there is a lack of small business lending. Consumer confidence that the economy will turn around anytime soon is very low and many businesses are seeing multi-month declines. For these reasons, it’s necessary when considering a business for sale to negotiate a deal that will protect you now and in the future if the economy doesn’t improve in the near-term.

Before deciding whether to own a business during these tumultuous times, there are six basic buy business steps to follow. By methodically following proven purchase business strategies, you’ll position your new business to succeed irrespective of the changing economic situation.

Here is a look at the six important steps to buying a business:

1. Request Several Previous 12-Month Profit & Loss Statements. Normally, a seller would provide year-end financial statements, any interim statements and tax returns for buy business inquiries. But considering the current economic conditions, you need to see the business for sale financials from the current date and back to the past 12 months, as well as financials from the prior 12 months and the 12-month period before that. This will give you a better picture of the overall health of the business for sale.

2. Be On The Lookout For Hidden Expense Cuts. With a business for sale, many sellers try to make the company look better by making cuts to enhance profits. When reviewing the financials, look at expenses for marketing, advertising and payroll by doing an item-by-item comparison over several periods and comparing the number to sales or income. Furthermore, a review of the balance sheet will show whether inventory has been cut or if shareholders or owners contributed their own money to improve the company’s bottom line.

3. Review The Customer Base. When buying a business, knowing the existing customer base is paramount. Although a business may be performing well, sales might show problems. If you decide to buy a business where sales are declining, make sure that you modify the purchase price accordingly and establish a new sales and marketing plan.

4. Negotiate Earnouts. These are purchase business terms based on performance. Linked to the purchase price, earnouts are assurances that the business for sale can survive in the current economic climate and grow in the near future. Once you’ve done an in-depth analysis of the books, establish an asking price that reflects the current performance of the business and its stability for future declines. It is critical to negotiate a performance-based deal, especially if the purchase business evaluation indicates a loss or no recent stability or growth. With an earnout structure, the seller receives the balance of the purchase price when certain targets are met in the future. Earnouts can be based on profitability, sales, or retention of customers.

5. Insist on Seller Financing. As far as lenders are concerned, this is not a buy business climate. So chances of you receiving financing for buying a business are slim, especially if you have little collateral or no business ownership experience. As such, it’s important that the seller finance the entire purchase business price or a large portion of it.

6. Don’t Be Intimidated By Business Brokers. They represent the seller, so it’s their job to present a positive buy business environment. As such, you need to take control of the deal.

When buying a business, it is essential to obtain all the key financial and performance data related to the business for sale. This information is your bargaining tool when meeting with the seller. You can own a business and be successful at it if you make well informed purchase business deals with the seller to limit your risk. Despite the present business climate, it’s exhilarating to own a business and there isn’t anything that should get in your way of realizing your dream.