December 14th, 2010 | Add a CommentFollow @justelementary
While you are analyzing a business for sale and after you have agreed to a preliminary terms to purchase a business opportunity, you are going to have to do perform and finish your Due Diligence. A quick note, you should consult with and hire legal and financial professional s to assist you with the process. Having been involved in many transactions, I can share some insight with you about the process and what to look for.
Number 1 most important thing to figure out is why is the seller selling? Make sure it is a legitimate reason, such as a genuine retirement. Get to know your seller to the best of your abilities on a personal level. Meeting with the seller in casual settings away from the subject business can open the seller up to reinforce what you know and what they have told you to that point, or it reveal things that may not be apparent during business meetings. Watch out for Red Flags. Simply put, if you don’t trust the seller, then cancel the deal quickly and move on.
Number 2 is to differentiate between operational problems caused by the seller and the problems caused by the marketplace or industry trends. You can’t do much about industry trends that are dooming the business to obsolescence, but when you find that the seller is holding the business back by causing operational inefficiencies or misplaced priorities then you have an opportunity. Now you’ll need to honestly assess your skills and abilities and determine if you are up to the challenge of rectifying the problems caused by the seller.
Number 3 identify trends in the Industry. Make sure you understand the big picture for the business and the industries it is in. Are there new avenues, technologies, law changes, services that are coming that you can use to your competitive advantage to grow the business? If there are, you may have a business you can grow and make more valuable by the time you are ready to move on and sell the business yourself. To do that you will need to determine how long you plan to operate the business for. For example if you are looking to run the business for 10 years, then you should do your best impression of Nostradamus and make sure there still will be demand for the business.
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