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281-565-4625

Call Us Now
info@acebusinessfinders.com

Advice


This page normally answers frequently discussed issues and topic’s during the process of purchasing or selling a business.  All answers are generic and opinion only and should not be used to address your specific transaction.  No answers are a substitute for legal or professional advice.  Always have a qualified professional assist you in the sale or purchase of your business.
 
Question:  What are the common pitfalls I will encounter when purchasing a business?
Answer:  This is an extremely broad question, but our answer is equally broad with a few specifics:
a) One common mistake that the buyer and seller make is that the process of buying and selling the business, the particulars, the parties obligations, the use of permits, the contingencies that must be satisfied for both parties to succeed, and the map from offer and acceptance until closing is normally inadequate.  If the Buyers and Seller take the time and effort to put together a detailed contract, this will become a map or blueprint that will guide both parties towards a successful closing without confusion or misinterpretations.
b) Another mistake is to close without obtaining the property indemnities, licenses, permits, credits and offsets that are deserved by both parties.  Oftentimes, you discover past due items after the Closing that may not be addressed in any closing documents.  Getting the Seller to reimburse or take responsibility after the Closing can become difficult and may cause the Buyer to incur liability and costs that were not contemplated.
c) And the third mistake is not paying attention to the feasibility period in the contract or not having one at all.  If the Earnest Money is paid to the Seller or escrow company, and the Buyer blows past the deadline on the feasibility period, the Buyer may not be able to terminate the contact and may end up being in breach if Buyer does not Close.  The Earnest Money most likely may be lost and additional liability to the Buyer may be possible.
d) Another common mistake is not spending extra funds on hiring the right professionals. In order to save a few bucks on the front end can you cost you multiples more on the back end. Professionals add value to find the right business for you and your circumstances, address issues which you may not be aware of, and add experience to best serve your needs. Attorney services are also a must so as to create official documents to minimize any ambiguity and solidify all agreements. 
 
Question:  What type of business is right for me?
Answer:  This too is an extremely broad question, but our answer is equally broad with a few specifics:
  1. “Making money” is not the correct answer when one asks why am I buying a particular business. “Making profits” is always the inherit goals of any operating business. The more appropriate questions is “How can I maximize my investment?” It is important to identify what one’s goals are over a period of time. Will this business offer me operations revenue as well as enterprise value? Is my focus to “flip” or to grow and build value over time?
  2.  It is also important to identify one’s strengths to identify which type of business is best to purchase – operator, strategic planning, scaling, building enterprise value, etc. are considerations. Do you purchase a hotel or a food franchise or n instrument? How much can you afford to spend without risking the entire family’s future?
  3. How can I obtain affordable financing? There are many lending options in the marketplace. It is vital to understand which instrument is best suited for one’s specific and unique circumstances. There is always a harmony balance of debt and equity and cost of this debt.
  4. Planning is an important aspect. The time is takes to identify, evaluate, negotiate, and close on a business investment is often overlooked. Due diligence is the most important aspect of identifying the right investment for one’s own circumstances. Part of the purchase process should be a realistic timeline of when one can expect a revenue stream to actually begin.
 
Question:  What should I pay for a particular business?
Answer:  This too is an extremely broad question, but our answer is equally broad with a few specifics:
  1. Knowing the value of a business is a complex approach. Understanding comparative market values is one approach. Revenue (if it is an operational business) could be another method. Certainly historical selling prices is another indicator. Another important concept is opportunity cost involved with purchasing any investment opportunity.
  2. Potential value vs. current value is another important factor. Understanding growth opportunities in an existing business will offer potential future value if you have a plan in mind. For example, if you are purchasing a hotel which is unbranded but you have a plan to add PIP in order to convert to a flagship and you have a budget for this in mind, can make the deal more lucrative.
  3. Understanding demographics is also important, especially when purchasing a Franchise. Who will the business cater to and does the current marketplace support that demographic que? If your business caters to a “blue collar” market and you are opening in a “family suburban” market, how will seek value?