What questions should you do before buying a business

For many entrepreneurs, the most expeditious way to start a new business is to buy an existing company, whether through a contract of franchising, either through an assignment. Looks like a perfect idea to buy because the company already has a clientele, a reputation in your area and established a way of doing things.

But before you decide to proceed with the purchase of a company, should make an accurate list of questions and evaluate to what extent it is a good decision.

First question: why?
The first question you should raise is the reason why the business is being sold. Of course the worst way to do that is directly asking the person who is selling the company. If the company has problems, the owner will certainly hide it some important details.

Discover the true motivation of the seller implies something to make a thorough search. In a first approach, the company should consider personally, trying to understand it as a client. See how customers are served and how to interact with the company. Customers are new or recurring? What are the company's image? Customers "love" of the company or just buy for the price? Why are customers of this company and not others?

Are so many issues that should raise through direct observation, which I suggest that you do with other people of their confidence to be the most impartial and comprehensive as possible in their analysis. Do it, preferably accompanied by people from "other parties" which raise different issues of their own. The important is to understand deeply the proposed value in which the company bases its entire business and why the current owner wants to sell.

If you find that the proposed value is fragile and easily replicable, you must have a good idea to improve it. Otherwise, do not think more on it.

Secondly, look at the sector
We are talking about a business planning software or a laundry? It is a sector in growth or a large traditional sector? How does the "economy" of this type of business, that is, as you gain money from such companies?

Find a sector with favorable economic characteristics and stable over the years is as difficult as finding a needle in a haystack. Who does not know Coca-Cola? How many years is that this company is generating good results to its shareholders? In dozens of years of history, Coca-Cola never has had a year of injury; grow their markets on a sustainable basis, the costs are well controlled and the value of the brand is absolutely astronomical.

Although it has not sufficient capital to buy Coca-Cola, this example serves to demonstrate that there are some areas with good economic characteristics and have the great advantage of not providing great surprises for its investors. Are sectors that are seeking a stable, predictable and whose business model is known. Moreover, companies in high growth may not yet have the maturity to succeed and be profitable (it is recalled from Dotcom?).

Third approach: the accounts
I remember well listening to a small business owner complain that a supplier of machines for weight training had raised some equipment to the force of a gym that had just purchased. The reason? The previous owner had not paid. There is no use analyzing financial statements if you do not have confidence that is true.

Thus, as it has a good degree of understanding of the business must pay to the financial aspects, is the watchword here is trust. Depending on the value of the initial investment and the size of the company, will have to conduct an audit of accounts.

If you are not expert in accounting and finance, the best we have to do is hire a professional in this area. Find a good accountant or auditor, you explain your idea and send it to the ground. I assure you that the money will pay for their services will be recovered many times throughout their life as entrepreneur.

The analysis of financial statements should focus on the main parts accounting: balance sheet, statement of income and statement of cash flows. From the financial results, it should be possible to analyze the evolution of sales over the years, profit margins and fixed costs. Are growing or declining? Why?
On a sheet, to question the accounting value of the company. As to the third? That has assets in his possession? What is your degree of financial autonomy and has evolved over time?
In financial analysis itself must determine whether the company is to be able to generate money. Is generating a lot or little? More or less than in the past?

If you know answers to these questions, and they are many, shall make a final, and all the more important, as this company is worth? It is a difficult question to answer, it is advisable to be conservative in its analysis. Disregard the value of certain assets and inflate the value of certain liabilities. If the amount you ask the company for (significantly) lower than the estimated amount that may have a good business for us. Otherwise, negotiate further or abandon the idea.

Finally, its contribution
When considering the purchase of a business, you will see it their way. The customer base, which will depend on to manage the business, may not appreciate the changes he has in mind. You can be the hardest thing in the world to buy a company to keep things running the same way we always worked, but the customer is always right and is the customer who will decide the success of the company.

Thus, before making major changes, carefully investigate the loyalty of its customers to realize that they are open to change. The transition from one owner to another, especially in areas where it "sees" the customer is a time sensitive and experience tells us that people are more conservative than look ...