4 Questions to Ask Yourself Before Buying a Business
When in the process of buying a business, some buyers have accidentally overlooked important questions that need to be asked. However, you don’t want to find yourself in a situation where you wish you’d found out details that would have impacted your decision-making. With that in mind, let’s take a look at some often-overlooked inquiries.
1. What Is Included in the Sale?
It is possible to get so focused on the purchase of the business itself, that you overlook key details such as what is included. Don’t just assume that you’ll also receive important assets such as real estate, inventory, or machinery. All of this must be carefully outlined and documented. You will want to know exactly what you’ll be getting for your investment.
2. What Assets Are Included?
You’ll want to get the ins and outs of the proprietary materials and ensure that they are included with the business. If there is intellectual property, such as patents and copyrights, formulations, or software, you’ll want to ensure it is included. If it’s not included in the sale, you’ll want to know why. After all, the success of the business could depend on these.
3. How Can You Grow the Business?
Before you buy a business, it’s a good idea to ask yourself about its potential for growth. Many sellers will be prepared to provide you with ideas and strategies. If it is deemed that the growth for the business is limited, this is something you’ll want to determine in advance. Also, it is important to think about the amount of working capital you’ll need to not only run the business, but also to make any necessary changes.
4. What is the Staffing Situation?
You’ll want to think about how dependent the business is on the current owner or manager. If and when the current owner leaves, how much will that impact operations? You’ll also want to know in-depth information about who the management team is and how experienced they are. It is essential that your expectations are in line with reality.
As you can see, many variables must be taken into consideration before you sign on the dotted line. Much of this will be handled during the due diligence process. However, it is essential that you ask the right questions and speak up whenever you need clarity on an issue. When a business is properly vetted, you’ll not only be satisfied, but you’ll also be more successful.
Read MoreHow to Determine the Most Probable Selling Price (MPSP) for Your Business
Every business owner who has contemplated selling their establishment has faced the question, “What’s the best selling price for my business?” The answer is more complex than simply pulling a figure from thin air. It’s a blend of analyzing data, understanding market trends, and assessing the unique value proposition of your business. Enter the concept of the Most Probable Selling Price (MPSP).
Understanding the Bell-Shaped Curve in Business Sales
Imagine a bell-shaped curve graph. On the horizontal axis, you have the selling price of a business. On the vertical axis, the probability of the business selling at that price. At the peak of the curve is the MPSP, where the probability of selling is highest.
This means that while you might be able to sell your business for a price much higher than the MPSP, the chances of finding a buyer willing to pay that premium are slim. Think of it like a balance scale; as the price increases, the likelihood of a sale decreases.
The Risks of Overpricing Your Business
It’s tempting to list your business at a price higher than its MPSP in hopes of landing that ‘dream buyer’. However, there are inherent risks with this approach. A business that remains on the market for an extended period starts to raise eyebrows. Potential buyers might think, “If it’s such a great deal, why hasn’t anyone snapped it up yet?” This perception can lead to a vicious cycle where the longer your business remains unsold, the harder it becomes to find a buyer, even at the MPSP.
Furthermore, an overpriced business can deter genuine buyers right off the bat. They might bypass your listing in favor of more reasonably priced options, assuming that negotiations would be futile.
The Importance of Flexibility in Pricing
Setting the right selling price is more of an art than an exact science. Start by pricing your business slightly above the MPSP. This allows room for negotiation and shows potential buyers that you value your business.
However, remain attuned to the market’s feedback. If there’s little interest or if potential buyers consistently feel the price is too high, be ready to adjust. Remember, the ultimate goal is to sell your business, and sometimes a minor price adjustment can reinvigorate interest.
In Conclusion
When deciding on the selling price of your business, it’s essential to trust the expertise of your business broker. They possess the experience and knowledge to determine an accurate MPSP. Avoid pushing for an inflated price based on emotional attachment or unfounded expectations. Instead, focus on achieving a fair market value that reflects your business’s worth and facilitates a timely sale.
By being realistic and responsive to market feedback, you enhance your chances of selling your business efficiently and profitably. Remember, the right buyer at the right price is out there. It’s all about striking the perfect balance.
Would you like to know what the MPSP of your business is? Schedule a time to talk to our representative here: https://zoombusinessbrokers.com/schedule-a-call/
Article is written by: Sara Vaziri, MBA, MSc, CBB, CBI
© 2023 Zoom Business Brokers
Take These Steps Before Buying a Business
If you’re buying a business, you might be feeling overwhelmed about all the details that are involved, especially if it’s your first business. Buying a business is certainly no small task, and that’s why you’ll
want to dive into the process headfirst and make sure that you’ve carefully examined the business.
Here are some of the most important elements to consider. While some of these aspects don’t immediately come to buyer’s minds, they should be high on your list of considerations.
Legal Documents
Reviewing legal documents might not seem like the most enjoyable task, but this activity should be one of the first things you will want to do before buying a business. Most worthwhile businesses will have a long list of legal documents to show, ranging from documents showing trademarks and copyrights to consulting agreements.
Tax Documents
When it comes to paperwork, tax documents are obviously also a necessary element to review. Some things that you should be watching for are forms that do not adhere to the IRS rules. It goes without saying that you don’t want to be the one taking responsibility for a previous owner’s error.
Business & Retirement Documents
The list of documents you’ll want to review doesn’t end there, as you’ll also want to check into retirement documents such as balance sheets, investment statements, and income statements. You’ll want to ensure that all of the qualified and non-qualified retirement programs run by the business are up to date. You might need to check the parameters of the Department of Labor’s rules.
Work with a Business Brokerage Professional
Your business broker or M&A advisor will take you through the due diligence process to help you make sure that all aspects of the business have been reviewed thoroughly before you sign on the dotted line. Be sure to work with an experienced individual who is proactive when it comes to making sure all of your questions have been answered to your satisfaction.
The items on your to-do list might seem overwhelming at first, but remember that a lot of focus and effort now will save you a ton of hassles and issues later. And you might end up dodging a bullet by spotting a serious issue that causes you to change your mind about a business. Always be sure to protect yourself and your best interests.
Copyright: Business Brokerage Press, Inc.
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The International Business Brokers Association recognizes Sara Vaziri with the 2022 Deal MakerAward
California The International Business Brokers Association (IBBA) has recognized the Los Angeles Business Broker, Sara Vaziri, MBA, MSc, CBI, CBB, with the Deal Maker Award for outstanding performance in 2022 as part of its Member Excellence Awards Program.
“The transition of business ownership between buyers and sellers is an important process, and Business Brokers are essential in facilitating that transition,” stated IBBA Chair of the Board, Kyle Griffith. “Our award recipients have earned praise and recognition for the personal excellence they have demonstrated and the positive impact they have had on the industry and everyone they work with.”
“We applaud and celebrate our award recipients who’ve not only proven personal excellence, but have also positively impacted the lives and futures of so many through their efforts.”
More information about Sara Vaziri, MBA, MSc, CBI, CBB, of Zoom Business Brokers can be found at www.zoombusinessbrokers.com or email Sara.Vaziri@zbbcorp.com or direct (949) 426-5067.
Request a free no-commitment consultation for selling your business
Formed in 1984 and with over 2,700 members, the International Business Brokers Association (IBBA) is the largest international not for profit association for Business Brokers. The association provides Business Brokers with education, free benefits, conferences, professional designations, support programs and networking opportunities, and award the Certified Business Intermediary (CBI) designation to qualifying Business Brokers. To learn more visit www.ibba.org.
About Zoom Business Brokers
Zoom Business Brokers is a highly accomplished team of dedicated and trustworthy professionals who are pioneering the process to skillfully guide, advise, and facilitate your seamless business transactions.
Our team of industry veterans embodies over 100 years of collective real-world experience and will provide you with mindful expertise and resources to buy, sell or merge your business with their decades of training and practice and an extensive relationship network. To learn more visit www.zoombusinessbrokers.com.
The International Business Brokers Association recognizes Sara Vaziri with the 2022 Chairman’s Circle Award
Sara Vaziri, MBA, MSc, CBI, CBB awarded with the 2022 Chairman’s Circle Award
California The International Business Brokers Association (IBBA) has recognized the Los Angeles Business Broker, Sara Vaziri, MBA, MSc, CBI, CBB, with the Chairman’s Circle Award for outstanding performance in 2022 as part of its Member Excellence Awards Program.
“The transition of business ownership between buyers and sellers is an important process, and Business Brokers are essential in facilitating that transition,” stated IBBA Chair of the Board, Kyle Griffith. “Our award recipients have earned praise and recognition for the personal excellence they have demonstrated and the positive impact they have had on the industry and everyone they work with.”
“We applaud and celebrate our award recipients who’ve not only proven personal excellence, but have also positively impacted the lives and futures of so many through their efforts.”
More information about Sara Vaziri, MBA, MSc, CBI, CBB, of Zoom Business Brokers can be found at www.zoombusinessbrokers.com or email Sara.Vaziri@zbbcorp.com or direct (949) 426-5067.
Request a free no-commitment consultation for selling your business
Formed in 1984 and with over 2,700 members, the International Business Brokers Association (IBBA) is the largest international not for profit association for Business Brokers. The association provides Business Brokers with education, free benefits, conferences, professional designations, support programs and networking opportunities, and award the Certified Business Intermediary (CBI) designation to qualifying Business Brokers. To learn more visit www.ibba.org.
About Zoom Business Brokers
Zoom Business Brokers is a highly accomplished team of dedicated and trustworthy professionals who are pioneering the process to skillfully guide, advise, and facilitate your seamless business transactions.
Our team of industry veterans embodies over 100 years of collective real-world experience and will provide you with mindful expertise and resources to buy, sell or merge your business with their decades of training and practice and an extensive relationship network. To learn more visit www.zoombusinessbrokers.com.