Due Diligence Checklist Tip for Buying an Established Business

Buying an Established Business - How can you trust if a seller’s financial claims are genuine?

When you are looking at buying an established business, the seller may provide their earnings in one form or another.  To verify the sellers’ financial claims, the first test is to ask for substantiation.  If the seller cannot or will not back up the information – walk away – do not waste your time. You must be able to thoroughly research and investigate all the information.

Remember, there are many variables to calculate when buying an established business, so it is wise to ensure a close ‘working’ relationship is built so that everything is out in the open and you have peace of mind about all areas of the business.

On some occasions, the seller has a different figure to what is actually in the records. There may be a good reason for this – perhaps there is a percentage of cash which is not always recorded and not relied upon. It is up to you to look into this to ensure you understand why, what amount and when is it taken in.

Do not take anything at face value. The saying “you get what you inspect not what you expect” applies here.

When you do find a business that passes the 1st and 2nd stages of your inspection, you then do a comprehensive due diligence checklist, ready for the remainder of your inspection.

Most sellers are good honest people some however are extremely tricky.

A vital part of buying an established business is conducting the inspection using a comprehensive due diligence checklist. The financials of the business are most important and should be done carefully and at your own pace. Here are a couple of starting points before you go any further in the business buying process:

1/ Request to see previous years tax returns and general accounts documentation

2/ Ask for evidence of all discussions with the vendor eg. Purchases made, staff, suppliers, leasing agreement to name a few

All the information for every facet of the businesses must be carefully investigated before negotiating begins.

When Buying an Established Business - Take your time and don’t be persuaded to rush through your due-diligence checklist. This is a big decision and your future financial situation is at stake. If you’ve covered everything necessary, there will be far less room for error or even regrets.

Start off with all the information by using the Bizbuy Kit.  You can simply step through the process with peace of mind and have the actual business valuation to measure the value of each business you are interested.

Why would you Buy an Established Business vs. a Start-up?

Some experts have predicted that a good portion of the workforce will be working in a self-employment capacity in the next decade; business ownership is becoming increasingly more appealing to many people.


Entrepreneurship and small business can be risky for the inexperienced, however, a great way to reduce some of that risk is to buy an established business which has already demonstrated an ability to successfully operate and generate profit.  Of course business buyers must also look at educating themselves on the business buying process to ensure they buy the right business at the correct business value.

Obviously a successfully established business comes at a price and generally you would expect to pay more to buy a business than to start one from scratch.

Looking at the financial side for a moment - It is estimated that less than 10% of all start-up businesses are able to successfully secure the financing required at the outset. This is due to the high level of perceived risk start-ups pose to lenders because every aspect of the business is unproven and certainly not appealing to most lenders.

Depending on the type of business, certain lenders may provide some level of funding however, it will be dependant on a number of factors such as the cash flow, numbers, assets - stock and the security you personally have available to offer the bank.

So, more and more business owners realise the difficulty in financing a business purchase and are open to genuine buyers negotiating for some level of vendor finance, business owners are also looking at different ways to package and present their business, hopeful to attract the right buyer.

It is obvious when you compare buying a business to starting your own your chances of success are still clearly best when you buy an established business.

Here are some key advantages of buying a business vs. start-up:

1/ Business processes and proven methods

2/ Proven products, services, sales strategies and marketing

3/ An established business generates cash flow day one

4/ An established business has much less chance of failure
5/ Customer base and Suppliers established

6/ Vendor will train and help a business buyer understand the business

7/ Vendor may assist the buyer with financing
8/ Lenders are more willing to finance an established business

9/ Business is already successful and credible

10/ Employees are there and should not require training


Securing affordable business financing is so much easier when buying an established business with a positive cash flow, consistent stability and a proven track record versus starting your own business because there is no history – it’s seen as ‘unknown’ territory.  Having the ‘unknown’ details already established and worked out by the previous owner certainly lowers the risk value when buying a small business or company.

Also don’t forget an established business or company should already have a relationship with a business banking manager, if the banks view the business as a good customer they will be keen to retain the business, the current vendor normally is quite happy to make the introduction.

Be ready and armed with all the facts, strategies and tips direct from experts who have walked in your shoes and have your best interest in mind.  You can have all the information you need to make a successful business buying decision without the pitfalls made by many business buyers - using the Bizbuy Kit.