Checklist - buying existing business

Are you buying an existing business? This buying existing business checklist may help you in choosing the right business.

1. How long would it take to start this business from scratch?
2. What is the cost of starting from scratch?
3. What degree of risk is there in starting from scratch?
4. Why buy an existing business?
5. Look at a range of businesses, go to your local commercial estate agent.
6. How many properties would you look at before making a decision to buy a house?
7. Have you 'viewed' at least this many businesses?
8. Will the vendor provide you with copies of at least three years' accounts?
9. If not, lose interest immediately.
10. What degree of certainty is there that you will retain the business's customers once the present owners depart?
11. Have you deciphered the real reasons for the sale? Don't take the vendor's reasons at face value.
12. What present and future threats and opportunities are there to the business?
13. What exactly is included in the sale?
14. What is the sale trend (over at least the past three years)?
15. When you subtract inflation from these figures what does the real trend look like?
16. In relation to present and future customers, what is the conservative estimate of its future potential?
17. Compare these sales figure to trends in this sector of business. For example, an increase of 10% in sales when the market has increased by 30% in the same period means the business is contracting not expanding.
18. What is the net profit now, is it enough for personal requirements and re-investment in the business to enable it to grow?
19. What is the real trend in profits? Look out for unusually high closing stocks - these can artificially push up the profit figure.
20. Calculate the net profit as a percentage of the total investment in the business.
21. How many years will the business take to pay for itself?
22. Have you examined all the overheads?
23. Are they realistic?
24. Will the stock sell?
25. How has the stock been valued
26. Is it a realistic valuation
27. What is the value of the business's net assets?
28. How does this compare to the asking price?
29. How may years at current profit levels will it take you to cover the asking price?
30. What value, if any, has been placed on 'goodwill'?
31. What is the ceiling price you are not prepared to exceed?
32. Are there any hidden costs to the purchase?
33. What points are there for negotiation with the vendor?
34. Can the asking price be brought down?

There are many things to look out for when buying existing business. Hope this checklist of buying existing business can help you in your venture.

If you are considering buying existing business, you may want to also consider buying a franchise. You can lower your risk even further with a franchise system.

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