Buying a small to mid-sized California business can be a complicated process. Once you go through the actual sales process, you actually have to run the business you just bought! While being an Entrepreneur has its perks, it can also be challenging so before you decide to buy a business, you need to make sure you are ready for the challenge and that you have a thorough understanding of the company you plan to own.
I have been a part of many deals throughout my time in this industry and I can't tell you how often business buyers miss information about the company they plan to buy because they aren't prepared with a list of questions to ask. Each transaction is different so ask additional questions specific to your own situation but here is a list of 10 questions to get you started.
Ask yourself these questions before starting the process of buying a business. Once you find a business you are interested in, I've given you another set of questions to keep in mind as you do your due diligence.
Personal Questions to Ask Yourself before Buying a Business:
Is it the right time?
While being an Entrepreneur may be something you've always wanted to pursue, before you buy a business you need to be honest with yourself. Evaluate your current circumstances and decide if it is the right time for you to take this leap. As I said, the process can be challenging and demanding so keep your personal commitments in mind as you think this through.
Do I have the support of my spouse or significant other?
When you become a small business owner your schedule and your finances may change. Make sure your significant other understands this and they are willing to support you if things don't go as planned.
How much working capital do I have access to?
Having access to working capital is important to ensure you can keep the business running if you should incur unexpected expenses or changes in revenue. I've seen people buy and run small businesses successfully without much working capital but it's always good to have a safety net and to be honest with yourself about the risks you're taking.
What do I want the business to do for me?
I suggest you decide early on what you want out of the business you plan to buy. Some people buy businesses as a career move and plan to work at them daily. Others buy businesses for a stream of residual income. Decide what you want up front so you can look for a business that can accommodate you.
Questions to Ask About the Business:
Why is the owner selling?
Asking why the owner is selling is important for a number of reasons. For one, it may help you uncover problems with the company if the owner is selling because of declining sales or other problems. It is also important because if the owner is in a hurry to get out you can use that information in your favor during price negotiations.
How did the owner arrive at the asking price?
Ask the owner what methods they've used to arrive at the asking price. This can help you evaluate whether the business is fairly priced.
How much is the owner taking in salary?
Many people don't think to ask this and it is very important. If the owner is taking a salary of $50,000 and you're accustom to living off of $100,000 per year you need to decide if you are willing to make the adjustment to your income or if the business can afford to pay you more.
What can I do to grow or improve the business?
Even if the company you want to buy is doing well, it can always do better. Before you buy a business that is for sale you need to have an honest conversation with yourself as what skills and experience you can bring to the table that would grow or improve the business after you own it.
Is the seller willing to sign a non-compete?
Regardless of what the circumstances are for the sale, I suggest you get the owner to sign a non-compete if appropriate. You don't want the owner to sell you his or her business only to open up shop down the street as your competitor.
What is my exit strategy?
Your exit strategy is probably the last thing you're thinking about at this point but I encourage you to consider it early on. If you think about your exit strategy you can buy and grow a small business that will provide you with the opportunities you want today and in the future when you are ready for your next venture.
About The Author: Peter Siegel, MBA is the Founder & Director (ProBuy & ProSell Programs) at BizBen.com. He is also a Business Purchase Financing Expert and Advisor. He works with potential business buyers, business sellers, brokers, agents, investors, & advisors. Reach him direct at 866-270-6278 to discuss strategies regarding buying, selling, (or financing a puchase of) small to mid-sized businesses.
|Helpful Resources To Assist In Selling And Buying California Businesses|
|Helen Yoo: Escrow & Bulk Sale Services - Southern California
New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151.
|Brad Steinberg, Broker - Laundromat Specialists
PWS is the leading laundromat broker in California. Since 1968 PWS has brokered over 2,500 laundromat sales. With over 90 employees dedicated to the coin laundry industry, PWS has 18 licensed agents, a 3 person in-house finance department, 10 service technicians and a 20 person parts department.
|Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services
Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063.
|Ranvir S. Sandhu, Esq. - Legal Services For Buyers And Sellers
I've worked at top Bay Area law firms and have extensive experience with business entity formation, mergers, dissolutions, conversions, employment matters, including experience in reviewing and negotiating transactional documents such as leases and purchase agreements.
|Janet Carrera - Escrow & Bulk Sale Services - SF Bay Area
Redwood Escrow Services, Inc. is a full service, licensed independent escrow company. We are EAFC Fidelity bonded, fully insured & licensed with the Department of Corporations. Committed to offering our clients the most comprehensive variety of escrow services available. Phone Janet at 510-247-0741.
|Elizabeth McGovern: Escrow Services - SF Bay Area
McGovern Escrow Services, Inc., is a leading independent escrow company. We are a trusted partner with our clients, assisting them through the tangled bulk sale & liquor license transfer process. We provide attentive, quality & innovative customer service. Phone Elizabeth McGovern at 415-735-3645.
|Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses
Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393.
|Diane Boudreau-Tschetter: Escrow And Bulk Sale Services
California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100.
|Related Articles, Events, Blog Posts, Discussions, Videos, Interviews|
|If You Plan To Offer Seller Financing: 3 Things Owner Sellers Need to Know
When selling your business, offering seller financing is a great way to help your business standout from others on the market and it is also a good strategy to consider that can help you close a sale. Peter Siegel, MBA (BizBen ProSel Program & Financing Expert) explains. Reach him at 866-270-6278.
|Buyer Beware: Does A Company's Culture Effect The Sale Of A Small Business?
When purchasing a small to mid-szied CA business, there are a many items to evaluate. One area that is often overlooked is the business's office culture. Peter Siegel, MBA with BizBen discusses with business buyers the importance of understanding how the business "feels" on a day-to-day basis.
|Is There Such A Thing As Paying Too Little When Buying A Small Business?
We all understand the idea of paying too much for a small business. But is there such a thing as not paying enough? That seems like an odd notion, but I'm familiar with situations in which a buyer acquired a small business for a figure substantially under what probably was market value.
|Selling A Business Without Getting Sued: 5 Tips For Business Sellers/Brokers
How do I sell my business without getting sued, isn't a subject just for discussions with lawyers. A seller can take some precautions to reduce potential legal problems. Peter Siegel, MBA Founder Of BizBen and BizBen's ProSell Program discusses this topic for business owners/sellers and brokers.
|BizBen Podcast - Listen To The Experts Discuss Buying & Selling Businesses
Some of the top experts in California who assist buyers and sellers with buying & selling California Small to Mid-Sized businesses lend their expertise on the BizBen Podcast. Weekly discussions & interviews with business buyers, brokers, agents, advisors and business owner/sellers are heard weekly!
|How To Determine Whether The Buyer For Your Business For Sale Is Sincere
A problem owners encounter when offering a CA business for sale is that not all so-called business buyers are qualified to make the purchase. It's frustrating and costly to waste time showing non-qualified buyers the business. Here are ways to identify time wasters so the focus is on real buyers.
|Top 100 List: This Week's Top Motivated Business Buyers & Their Requests!
If you're trying to sell a business - check out this week's top 100 business buyers - one of these buyers may be looking to buy your type and location of business! This list is updated weekly - make sure you check it frequently! Are you searching to buy - get on this list and reach seller direct!
|Financing A Business Purchase With Limited Or No Real Estate Collateral
In my experience working with the "right banks and financial institutions" repayment ability sometimes overrules collateral pledged by someone needing financing for a business purchase or a down payment. Peter Siegel, MBA (Business Purchase Financing Expert) at 866-270-6278 shares his experience.
|See All News, Tips And Events|