Planning to Buy a Business?

Planning to Buy a Business?

Posted on September 11, 2009

Considering that buying a business can be a scary process for some, here at Indiana Equity Brokers, you are best advised to develop a business plan that can help ensure that you know what your goals are and how to achieve them.  In essence, a business plan is a road map that helps you focus on something else besides your apprehension.  IEB will sit down with you and discuss the best course of action for operating a successful business; following the transaction every stop of the way.  Meanwhile, here are some points to consider.


Examining Your Objectives

Before you buy a business and enter the marketplace, you want to consider your objectives - why are you doing this?

  • Will your goals be met faster and at a lower cost by buying a business as opposed to developing one on your own.
  • Do you want to expand quickly into a new location by buying another business in the same field?
  • Do you want to buy all or part of a business to gain access to a particular technology that will significantly upgrade the competitiveness or extend the lives of your existing products?
  • Maybe you're buying a business with compatible products or services that can be marketed through the same network as yours, taking advantage of a strong but underutilized distribution channel?

Evaluating Strengths and Weaknesses

In order to be objective about the value that this business that you want to buy will bring as well as allow you to negotiate more effectively, you must understand their strengths and weaknesses or its current operations.  Doing so as well as what you can do with the business with their products and market position given your personal strengths, skills and experiences, will allow you to help negotiate the price that you pay for it.

Additionally, you should be doing a thorough evaluation if you're looking to buy a larger business with an asking of $500,000 or more.  In particular, you should look at three areas:

  1. Marketing and Sales - Research distribution channels and pricing strategies;

  2. Manufacturing - Analyze product costs such as raw materials, labor and overhead, availability or materials, operational forecasts and condition and capacity of manufacturing facilities;

  3. Business' Financial Position - Estimate the company's future working capital and capital investment requirements, current talent and expertise and transferability of skills.

In order to avoid logic failures, you must have substantial planning in place.  As for process failures, these can be avoided by properly executing the transaction after a plan has been made.