Entrepreneurship & Small Business

planning to purchase a business (things to watch out for)

  • Last Updated:
  • Aug 18th, 2017 2:20 pm
[OP]
Newbie
Sep 8, 2015
36 posts
2 upvotes

planning to purchase a business (things to watch out for)

I am planning to purchase a business around a 1 mil range with a partner.
Only purchasing business not the property.

This is my first time. What are the things I should watch out for?
The partner is someone I do trust (related to me).

The things I have been looking at:
- how long has the business been operational
- records for last 5 or so years
- inspection during business hours of customers/purchases etc.
- any bankruptcy filed (Not that it matters as my own corp will take over the lease.)

For privacy reason I don't want to say what but it is food related.
Hence I am looking at if there are any health inspection complaints by the city.

Some of the sellers have mentioned that a part of the income is cash so they don't keep a record of it.
Although it does set off a red flag but I know this to be true of many businesses.

Another question is around bank financing.
Between myself and my partner, we have about $400k, how difficult would it be to get around $600k from the bank and what type of term and interest are we looking at?
Also how difficult is the process to secure this type of lending from the bank?


Thanks
5 replies
Deal Addict
Aug 28, 2007
1813 posts
227 upvotes
Calgary
Have a look at business brokers in your area. Their websites may have some general but useful information for you. Be warned, the whole game of business brokerage has a reputation for charlatans and unscrupulous realtors. That being said, have a look at this guy. I've never used him but his tips page is an interesting read.
[OP]
Newbie
Sep 8, 2015
36 posts
2 upvotes
Just Confused wrote:
Aug 14th, 2017 3:15 pm
Have a look at business brokers in your area. Their websites may have some general but useful information for you. Be warned, the whole game of business brokerage has a reputation for charlatans and unscrupulous realtors. That being said, have a look at this guy. I've never used him but his tips page is an interesting read.
Thank you
[OP]
Newbie
Sep 8, 2015
36 posts
2 upvotes
Are these the same guys (business brokers) who do valuation as well?
If I am looking for a service that provides a complete report on whether a business makes what it claims to make and whether it is worth buying, is there another type of agency I should approach?

Thanks
Penalty Box
Dec 27, 2013
6141 posts
2226 upvotes
Toronto
i think you are in wrong place for serious question like this.
Deal Addict
Aug 28, 2007
1813 posts
227 upvotes
Calgary
captnoon4545 wrote:
Aug 17th, 2017 9:21 am
Are these the same guys (business brokers) who do valuation as well?
If I am looking for a service that provides a complete report on whether a business makes what it claims to make and whether it is worth buying, is there another type of agency I should approach?

Thanks
Yes, business brokers will conduct and provide business valuations. However, your accountant would probably be a better person to advise you on determining a financial valuation than a business broker. Also, keep in mind that neither of them will be producing a report that has all the answers and guarantees. You are still responsible for making the final assessment yourself. Value, like beauty is in the eye of the beholder.

As I said earlier, buying and selling businesses is fraught with challenges. Your objectives will not align with any of the other parties involved; some of those parties will be unscrupulous. A business is sufficiently large magnitude in price that you will be expected to know the risks and purchase the services from several appropriate advisors to assist you with the complete process. Remember each of those advisors needs to get fairly paid so they all have a built-in conflict of interest. Caveat emptor is the best advice.

There is no one to help you for free. You have to learn everything by trial and error.

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