Buying A Business

What are the four most common “A” list Buyer questions?

The “A” list:

1. Is the business profitable or how much money does it make?

2. If the business is profitable, why is the Seller selling the business?

3. What is the Seller’s core motivation to sell at this time?

4. What is the upside potential if I buy the business?

5. And, how did the Seller come up with the sales price?

The “B” list might include:

1. With a sizable down payment, will the Seller carry a note?

2. Are there trained employees who will stay on with the business?

3. What is the condition of the lease that is presently in place?

4. Does the business have a vendor concentration issue?

5. Does the business have a customer concentration issue?


A.       It’s good to remember that businesses are bought and sold by human beings.

Consequently, certain non-financial factors, such as the Seller’s motivations, and

the experienced business broker’s negotiating skills are as important as financial accounts and spreadsheets.

B. All Business valuations are ‘Opinion’s of Value’. The only true test of value is

an arms-length sale on the open market after a thorough marketing program.

C.       Full financial information underpins credible Opinions of Value. The more curious and thorough the business value appraiser is, and the more careful the analysis and risk assessment is, then the better the Opinion of Value will be.

D.       Businesses’ value changes over time. The Sales Price is driven by supply and

demand and can change dramatically, e.g. or the introduction of new technology,      and/or new competition in the marketplace.

E. Terms and conditions impact the price. Discounted price, Seller financing,

on-going consultancy, non-compete clauses, earn-outs and warranties can all

skew prices.

F. Businesses have different values to different Buyers. Are you a “job” buyer,

an investment buyer or a trade buyer looking for synergies and economies of

scale?  Each type of buyer will view the same business differently and the    benefits they can derive.

G.        Beware of forecasts and ‘hockey-stick” projections. While business valuations should be forward-looking, as buyers you are buying the future income stream.  Consequently, purchasers should be cautious.  Remember that the future is the Buyer’s time and capital that will access the potential of the business.

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