Buying A Business

by Darrin DeRoches March 31 - April 6, 2011

The Do’s and Dont's I am in the process of negotiating a sale of a small business and the stumbling blocks seem pretty small to me but they are pretty serious to the potential buyers.  The first annoying part of selling a business is answering the first question from potential buyers “Why are they selling?” The oldest answer in the book is “owner retiring” but the real reason is usually “Business is bad.”  The next request is always “send me the financials...” My stock answer is either sign a confidentiality agreement or better yet come see the property.     It amazes me that people call about a business for sale and they actually think we would send the financial information to them before they have even bothered to look at the property or meet with us to see if they are even qualified.  Who in their right mind would just send out private information to every Tom, Dick and Harry?  The question of “why are they selling?” should be understood from the beginning – they do not want the business anymore! Nine out of 10 times the sellers need to make a personal or financial move in life and the business is first to go!  So the Dont’s of buying a business are to ask these questions.     The Dos are pretty simple. View the business and ask for a simple overview of the income and expenses.  How much is the lease, equipment, utilities etc.  Ask how much the business has done in the last three years and if it has not gone down – they are most likely pulling the wool over your eyes.  When you have an understanding of the costs you need to start doing your homework.  If it is a takeout restaurant I would be most interested in how many takeout containers they bought the last three months.  If it is a bar I would look at the beer and liquour purchases.  A beer receipt or take out container will answer the value of a business more than any financials provided.  If they are a smoothie bar, how many straws did you use this month (2500 straws times 4 bucks) they did 10K in business.      The last thing is: sit across the street for an 8 hour day and count.  How many people walk in, how many people walked by.  This information will give you a real feel for the business and the potential of the business.  Do it two or three times and you will know the sales and the potential. If you get the financials and the owner retiring line and you base your decision on this – you should never have bought a business in the first place.  Buyer beware! Do your homework!  V     Darrin DeRoches is a local real estate and mortgage broker. He can be reached to answer questions, comments or stories about real estate experiences through this weekly column at mail@uniquerealty.ca.