Financial

Check financial statements, payables and receivables and the competitive environment

by Richard A. Hale

Few careers may be as satisfying and personally rewarding as operating your own small business. If you've been bitten by the entrepreneurial bug, you can build a business from scratch, or if you already are running a business expand by adding a branch location.

Another alternative is to buy an existing business. If you decide to buy, it will pay to do your homework to avoid turning the dream of being your own boss into a nightmare.

Finding the business that's right for you. Once you make the decision to buy an existing business, the challenge is to find the right one. Some good sources of information about businesses for sale include trade associations, newspaper classified advertising, business brokers, magazines and periodicals, the Internet, and your family and friends. While some of these resources allow you to conduct a specific search, others offer you access to a multitude of business opportunities.

Evaluating a small business opportunity. After finding, a business that piques your interest, how do you know if it's a viable venture? Here are some "tires to kick" as vou begin investigating a prospective business purchase:

?Financial statements. Make sure to review financial statements and tax returns for the past three to five years, and ask for an audit letter from a reputable CPA.

?Payables and receivables. Check the dates on invoices to make sure the business is up-to-date with bills. You'll also want to find out if any liens have been placed against the business for unpaid bills. As you review the accounts receivable, do so with a critical eye. Knowing that the clientele is financially stable and pay their bills on time is very important.

?Employees. Essential personnel are an important asset to most businesses. Look at the key employees and make sure they are people with whom you can work. As you examine the role the current owner plays in the company, consider the next point.

?Current ownership. Determine whether the current owner is willing to stay on as an employee for a period of time to help you through the transition period and to retain clients.

You may also want to require him or her to sign a non-compete agreement. That will prevent that person from being in direct competition with you a situation that could prove very detrimental to your success.

?Customers. These may be the most important asset you are buying with the business. Make sure they are as solid as the other tangible assets you'll acquire. If the clientele has a special relationship with the current owner, find out if there is a possibility they'll take their business elsewhere as a result of the change in ownership.

?Location. The location is especially important if you are buying a retail business. You need to evaluate its proximity to competitors, availability of parking, the future worth of the neighborhood and its accessibility to walk-in trade. If leases are involved, look at their terms, and make sure a change in ownership doesn't void a lease agreement or reopen a lease for renegotiation.

?Appearance of facilities. Don't underestimate the value of your first impression when you entered the business. The environment in which a company operates can be revealing. Pay special attention to maintenance that is needed, like leaky roofs, peeling paint and poor signage.

?Competition. The competitive environment in which a business operates is critical to its success. Check into industry trends and how they might affect the company you are considering. Know your competitors and how they are pricing their products. Determine if any competitors have gone out of business and find out why.

?Reason for the sale. It's important that vou know why the business is for sale. The retirement of the owner makes a business more marketable than if a major com

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The competitive environment in which a business operates is critical to its success. Check into industry trends and how they might affect the company you are considering.[[In-content Ad]]