POVLITZ Inc | Business and Entrepreneur

As in the case of a franchise, a preexisting business can be a great option, if you do it right. The fact is, you need not be an innovator to be a successful entrepreneur. Many entrepreneurs are great turnaround artists. They have far more success recognizing an opportunity and capitalizing on an existing venture than starting their own business. While you really never know what will happen when you create a business, when you buy an existing business, you can do enough research to be fairly certain what to expect. As such, buying an ongoing concern is less risky than starting a brand-new business. The key to a business purchase is to dig into the business’s records and history. If the past is prologue, then knowing what has happened in the venture will tell you where it is headed. The main things to check out include location, profits and losses, and people.

Location

How long has the business been in that location? It is a good sign if the store has been operating in the same place for many years. Conversely, if other businesses have failed in that location, you should be concerned. Some locations get a bad reputation in the neighborhood, and you should probably avoid those locations. You also want to be sure that the place is convenient for customers, has adequate traffic flow, is up to code, has adequate signage, and does not need a lot of remodeling. Finally, you need to see where your competition is in relation to the location.

Profits and Losses

You are buying a business presumably because you want an accurate idea of what your profit will be. To figure this out, you need to get from the proprietor the past five years’ worth of audited balance sheets, income statements, and cash flow statements. Your accountant should review these. You need a copy of the lease and any other contracts for which you will be responsible. You need to get a list of assets and liabilities, receivables, and obligations. You need five years’ worth of tax returns. Basically, you need all records as they relate to the business, and you need to spend time analyzing these records with your accountant.

People

You will be buying not only the business but also the staff. Review personnel files and meet with employees individually. Find out whether any have contracts that could prevent you from letting them go for any reason. You also need to speak with some of the business’s customers. Discover what they think of the business, how they like it, and how long they have patronized it. That alone will tell you a lot.
Finally, make sure the owner is someone you can work with. He or she should disclose all financial, legal, personnel, and customer information. If information is refused, then there’s a problem.