Without a doubt, buying a business in Chicago or elsewhere, can be very exciting; however, prospective buyers mustn’t overlook what is truly important. So let’s take a look at the five most important steps that any buyer needs to take when evaluating a business. As a buyer, the simple fact is that you have no choice but to look beyond the sizzle and work to find the steak. In other words, determining the true worth of a business is essential.
#1 – Evaluate What is Actually Being Sold
No buyer should assume that they understand everything that is, or is not, being sold when buying a business. Therefore, one of the most important tasks for any buyer is to carefully evaluate the business of interest and invest the time to fully understand what the business does and what is included in the sale. This is a task that your Business Broker or Merger and Acquisitions Advisor here in Chicago or elsewhere will assist in performing to help a buyer understand the business of interest.
#2 – Understand Business Performance
Fully understanding the ins and outs of how a business performs can be more complex than it initially appears. On the one hand, the numbers don’t lie, and it is possible to quickly evaluate the business’s bottom line. On the other hand, however, when going through the evaluation process, you and your Business Acquisition Broker or M&A Advisor might discover that there are factors that could alter the performance of the business. For example, a buyer will want to consider the number of hours the current business owner is working and if the key employees contribute enough to the business in terms of labor, etc. There is a wide array of factors that can influence the overall operation, and these are just two examples.
#3 – Look at the Financials
Ultimately, there is no replacement for fully understanding the current financial standings of a business. It could be that a business has all the potential in the world. However, some buyers may obtain some sort of financing, so it is critical that the business has strong financials in its current state. Therefore, during the due diligence process, you and your team of professionals will want to carefully perform a business valuation or estimate of value, including, assessing the profit and loss statements, reviewing tax returns, balance sheets, and obtain any other important financial documents.
#4 – Evaluate the Business Plan
It is vital to have an understanding of the current owner’s goals and recognize what steps they’ve outlined to achieve those goals. As a new owner, having a solid business plan in place and knowing that there is a clear path forward to grow your business is essential for achieving that goal. A business plan template for new business buyers is available on our American Business Acquisitions website. https://abausa.com/creating-developing-business-plan-buy-start-business/
#5 – Look at the Demographics
Understanding your customers is one of the best ways to grow your business. For this reason, knowing the business demographics and why customers should remain loyal is very important. You will also want to know if there are any changes on the horizon, such as any new competition in Chicago if buying a business there or if a competitor is expanding in the Illinois area.
Evaluating a business is not a simple process. Working closely with a business brokerage professional intermediary who has years of experience in assessing all types of businesses, ranging from B2B or B2C service businesses or companies to large manufacturing or distribution companies. This first step is an excellent way to begin the process of finding the right business for your needs.
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