After we posted the Business Buyer Beware blog earlier this week, Colleen, one of our business advisors who had just returned from holidays, brought to my attention a couple of other caveats she thought should be mentioned.

 

My last blog caused a good bit of discussion around our staff meeting table with everyone contributing a sad story of lost savings, dishonest dealings or ‘finagled’ numbers. Our business advisors are very knowledgeable and capable professionals. One thing they can’t do is turn back the clock and prevent some questionable decisions that have caused such grief to somewhat naïve but well-intentioned business buyers.  

 

That is not to say that there aren’t good honest business people with the intention of selling stable enterprises with good earning potential.  Just that it always pays to do the homework to ensure that’s who you are dealing with and that’s the outcome you will achieve.

 

Some of Colleen’s suggestions:

·         If you are taking over a lease or taking on a new one in rental premises, it’s worth paying a lawyer to check over the agreement. Pay special attention to: who covers the cost of maintenance/replacement of electrical, plumbing and HVAC components? How old are these elements and when were they last replaced? What is the average lifespan of each component?

·         Verify that the numbers you are being shown are real. Ask to see a random sample of daily till tapes for various months so you can see how the totals were achieved. This will also assist you in confirming the incoming cash flow and business cycle which is useful in preparing financial projections.

·         Get a complete listing of all assets that you will be purchasing along with the estimated fair market value and the age of the assets.  If you are dealing with specialized equipment, it’s worth getting a competent technician to check that everything is in good working order.

·         Will the current owner stay on for a period of training and introduction to existing clients?  This can be a benefit where there are long-term owner/client relationships.

·         If you are purchasing inventory, the day before the sale of the business, do a physical count of all that you are purchasing. You should also develop an aging report to ascertain the potential for those items to be sold at full price or the requirement for discounted pricing.

·         Are there policies and procedures documented for all of the business systems, including human resources, technology, operations management, and customer relations management?

·         Spend some time observing the daily operations and traffic flow of the business.  Take a random sample and do some extrapolation to justify the financial documentation you have received.

·         Take stock of how much time it will take you to get rolling if there are new systems to put in place, corporatel structures to develop, signing documentation, legal issues, new signage, new supplier relationships and credit applications.

 

We could probably go on for days on this subject, but hopefully this will provide you with some food for thought when you are considering this major and all-important expenditure.

Posted by Sandra Altner at 9:30 AM 0 Comments

Tags women entrepreneurs  women-owned businesses  Women’s Enterprise Centre  buying a business  franchises