Buying Fundamentals

  • Buy a business you like.
  • Don’t expect “traditional” financial information from the owner of a privately owned business.
  • Tax returns of a privately owned business are prepared to show as little income for tax purposes as possible.
  • You and the owner of the business should like each other.
  • Commercial banks won’t lend you the money to purchase a small, privately owned business.
  • The owner of the business should finance the purchase.
  • Don’t pay yourself out of cash – you will need reserves.
  • You must make an “offer” before you have seen all of the financial and other business records of the business you are interested in buying.

Buy a Business You Like

Many business buyers think the most important quality in a business is profitability. Certainly, you want a business that will have sufficient earnings to provide for you and your family, BUT you will risk making a terrible mistake if you do not BUY A BUSINESS YOU LIKE.

Suppose you find a septic tank cleaning business that makes lots of money and can be purchased for a reasonable price with great terms. Unless you want to pump septic tanks, the fact that the business makes lots of money is of no importance at all. If you bought this business because of the income, you will spend long, miserable days in the business and will end up neglecting the business and selling it.

When you think about buying a business, think about what you like and don’t like. If you fix on a particular type of business, visualize yourself running the business. Visualize taking your friends and relatives to see your business. Do you like what you see? Will you be proud to own the business? If not, or if you are not sure, don’t buy that type of business.

Be Flexible

You will have to be flexible in finding a business. If you lock onto only one type of business, it will take you much longer to find a business to buy. We like to start a buyer thinking about what they like and don’t like using the following broad categories of businesses. First decide if there are any categories that you absolutely do not want to be in. Then focus on the categories and review the characteristics of these categories as presented below.

  • Retail
  • Service
  • Manufacturing
  • Distribution
  • Restaurant
  • Lounge
  • Coin operated businesses

Once you have selected a primary category, you can begin to look for a business in earnest. You will find many different businesses within each category that share the primary characteristics of the broad category. You will then have to “fine tune” your selection. For example, within the retail category, we have clothing stores, shoe stores, boutiques of all types, bicycle shops, etc. Within the restaurant category, you can choose from full service restaurants to ice cream stores. JUST BE SURE YOU LIKE IT BEFORE YOU BUY IT!