Buying an Existing Business
One of the best entry strategies into the world of business ownership is to purchase an existing business. The main advantage to buying an existing business is that the business concept is already proven since there are already customers purchasing the products/services. However, before deciding to buy a business there are two key pieces of information that must be determined. First, the business must be valued, and second, the adjusted profitability has to be made for changes in the new ownership.
In order to place a value on a business you will need the following information:
- List of all fixed assets (buildings, equipment, office furniture, computers, vehicles, etc.)
- List of all inventory (items held for resale to customers)
- Three years tax returns (schedule of profits and losses as reported to the IRS)
- Asking price of the Business
- Schedule of accounts receivable
- Is the seller willing to finance a percentage of the sales price.
- Current profit and loss statement and current balance sheet
- Costs to modify the business (building needs a new roof or new piece of equipment)
By obtaining the above information from the current owner of your targeted business acquisition, you will be able to provide the SBDC with all of the information necessary to approximate the market value of the business.
Determining the adjusted profitability of a business requires you to first identify the current profitability from the most recent fiscal year profit and loss statement and then add/subtract increases in revenues/ costs associated with the change in ownership. These revenue/costs can include new product lines, increased margins, owners salary, interest payments, rents, taxes, and fringe benefits. The SBDC has counselors who are trained to analyze these types of business transactions and can provide you with FREE and confidential assistance. Contact us today using the numbers or e-mail on the bottom of this page.
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