5 Business Risk Factors to Consider When Buying A Business

5 Business Risk Factors To Consider Before Buying A Business

1. Are all processes and procedures clearly documented (position descriptions, supplier agreements, customer agreements, etc)?

2. How good is the communication within the organization (free flowing, honest, ‘no blame’ culture)?

3. What condition is the plant and equipment (modern, efficient – not outdated)?

4. What level of cooperation is there within the business (no silos, compartments, internal rivalry)?

5. Can the business run without the bosses for extended periods?

These are just a few areas I recommend investigating before you buy a business.  You can find more business buying tips in previous articles or the BizBuy Kit.

Small Business Buying or Selling Term - 'VALUATION'

Valuation is the process of appraising the worth/value of property according to some recognised criteria .

A Business Valuation is often sourced from a Business Broker but this is not the only option and can be a costly exercise, however necessary.

Whether you have engaged a business broker or not, it is always wise to have the business valuation calculated by a third party.

By keeping this critical element at arm's length, you will never have to second guess the motivations of your business broker

If you do not wish to engage a business broker, you have an accurate alternative with the business valuation software tool.

Why Small Business Owners are Choosing to Value Their Own Business

Thinking Of Selling Your Business? Don’t Until You Hear This… Why Small Business Owners Are Choosing to Value Their Own Business

Selling your small business for its true value and at the very best price is definitely challenging, however surprisingly straight forward.  More small business owners are becoming aware of just how simple it is to sell their own business without having to pay the large commissions.

One of the most common reasons why small businesses which are on the market do not sell is inaccurate business valuation, resulting from an incorrect selling price that may either be too high or too low.  In determining business value, the mathematical expression of total assets minus total liabilities is only half the whole picture 

When preparing your small business for sale there are a lot of other variables that must be considered to come up with an acceptable business valuation especially to attract potential buyers.  As you are aware, no two businesses are the same, so why should they be valued the same way?  That is why it is imperative to calculate your business valuation and include absolutely everything - just the 'multiple' method may not cut it.

Small Business Valuation - Doing a Business Valuation on the back of an envelop?

It may come as a surprise to learn just how many business brokers price small businesses for sale and business valuation is often written on the back of an envelop.

The business valuation method following is used by business brokers to determine an asking price for a small business; it is based on the adjusted net profit using the most recent profit and loss statements.

The business broker will look at all the business expenses to see what they can 'add back to profit'.  This is referred to as add backs or recasting.

The adjustment is made by adding back to the net profit all the non-essential or discretionary expenses, not necessary to run the business, to show a more accurate net cash flow for the owner.

The business may also have unaccountable expenses - in this case it would be adjusted down.  Once this number is determined, the next step is to get the envelope and pen then the business broker will multiply the adjusted net profit, usually by 2.5 times and they have an answer.

As you can plainly see, business valuation, using this method doesn’t make a great deal of sense and frequently has devastating results for small business buyers and sellers............but it is easy.


Some business brokers may even mention rule of thumb, but as one very wise business valuation practitioner suggests - 'thumbs come in many sizes'. 

The best thing to do is ensure you have a comprehensive small business valuation tool and step by step instuction for an accurate business valuation.

Selling a Small Business - What happens if the sale falls through?

Why your small business sale can fall through without warming.   Selling a small business yourself and what to do if the sale falls through.

Reducing the risk first and foremost -

1. One of the most important things you can do when selling a small business is establish the correct asking price in the first place.  9 out of 10 business owners have no idea what their business is worth 
2. Provide the business buyer and their advisors with a business valuation which gives details as to how you arrived at the price 
3. Show them why it's sound - you're taking the guess work out of it for them

This gives you the support you need to move the sale forward

It is extremely important to present your business in the correct manner to maximise your small business sale potential.

How to Sell Your Business - Daydreaming about getting out of your business? Wonder how you would go about selling your business?

Do you find yourself thinking about getting out of your business and wonder how to go about it?

Selling your business /exit planning is a broad and complex topic.  No two situations are identical. 

The right exit plan depends on the business itself and the needs and wants of the business owner, however, no matter who you are or what circumstances you are in, this is one strategy that can be used by all business owners:

Do not procrastinate – Get started now.  I cannot emphasise this enough.  Even if you have only just started in your business, you ought to always run your business with one eye on the exit.  After all, you may not control your exit timing.  You may not even be around to manage the process.

However, lets assume you are and you plan on selling your business to retire.

The process of selling your business - Consider that some businesses may take a year or more to properly prepare for sale.  This can be due to the involved nature of them or the lack of prior planning and available information.

Keep in mind that to put a business on the market without the correct preparation can have disastrous consequences on the business valuation- sale price of the business.

Planning and knowledge of the process is crucial and business owners that are educated about the exit planning process will achieve the best outcome.

Start running your business with the end in mind.

For more information visit http://www.bizsalekits.com/.  There's a great little free book for business owners to get started on called 'Insider Tips for Selling a Business'