Step3:
Understand the Basics

Buying an existing business will require some in-depth analysis on your part. You will want to inspect the facilities and review the current financial and market position. Again, a professional broker can assist you in these complicated considerations.

Some key points of review:

Financial Analysis:

• review the seller's financial position for the past 3-5 years
• review the financial statements and tax returns — do they correspond?
• check to see if the financial statement have been audited by a reputable CPA firm (most small businesses do not have audited financial statements). Do the numbers support the reported value?
• review the account receivable logs: what is the company's collection policy? who are the major accounts and payment history? are there late payments or write-off collections?
• review the accounts payable logs: are payments being made on time? are there any liens on the company due to nonpayment?
• analyze cash flow: is the company maintaining positive cash flow?
  
• other: TBD by in-depth evaluation

Market Analysis:

• analyze the current industry, market, and competition
• analyze the industry growth for this type of business
• analyze the market growth for the business area
• review the potential development of new markets or product lines
• analyze how the business has grown its market
• review the current advertising strategy
• determine who are the competitors
• estimate what the competitive reaction may be in the event of business transfer
  
• other: TBD by in-depth evaluation

Customer Analysis:

• who are the customers: family, friends or other?
• how long have these customers been on the books?
• what is the customer loyalty to the business: service, ownership, location, price, product, etc.?
• will the customers remain if business ownership changes hand?
• what is the customer service policy: review complaints, returns, disputes, etc.?
  
  
• other: TBD by in-depth evaluation

Employee Analysis:

• who are the key employees: family, friends or other?
• what is the employee loyalty to the current owner?
• what is the employment market in the business location in the event that employees leave?
• what incentives will you need to pay to keep key employees?
  
  
• other: TBD by in-depth evaluation

Physical Analysis:

• check the business' location: does it have a market for growth, new customers, etc.?
• check the business interior: has it been maintained?
• review what business maintenance will be required?
• review how inventory is managed and maintained?
  
  
• other: TBD by in-depth evaluation

Macro Analysis:

• what are the local zoning laws, registrations, licenses?
• are their any governmental regulations that impact the business?
• what are the environmental impacts of the business?
  
  
• other: TBD by in-depth evaluation

The NACBB Group works with the business owner to address these issues in our Confidential Offering Memorandum form. Of course as the buyer, you will conduct your own internal review to ensure the business meets your benchmark objectives.

With this knowledge, let us help you find a good business.