Why It May Be A Great Time To Buy A Business
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 moving upwards, with sellers relaxing their buy business terms because there are a lesser number of qualified buyers, third-party financing has become almost impossible, and chances to negotiate an excellent deal for a business for sale aplenty.
However, the welcoming climate for buying a business doesn’t mean you should proceed without having certain buy business fundamentals 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. At the moment, the buying a business market is being significantly damaged by the present economy and there is very little small business lending happening. Consumer confidence that the economy will turn around sometime in the near future is at rock bottom, and many businesses are experiencing multi-month declines. For these reasons, it’s crucial when pursuing a business for sale to negotiate a good deal that will assure your protection both now and in the future if the economy doesn’t improve relatively soon.
Before choosing whether to own a business during these particularly difficult times, there are six fundamental buy business steps to remember. By following prudent buy business guidelines, you’ll position your new business to succeed irrespective of the economic environment.
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. Even if a business is performing well, sales may show issues. If you chose to own a business where sales are dwindling, be sure to adjust the purchase price accordingly and have a new sales and marketing strategy in place.
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’s essential to negotiate a performance-based deal, especially if the buy business evaluation shows 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 the likelihood of you acquiring financing for purchasing a business are slim to say the least, especially if you don’t have much 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 current business climate, it’s exciting to own a business and nothing should stand in your way of realizing your dream.
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 of buying a business.

