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A weekly look at Wyoming business questions from the Wyoming Small Business Development
Center, part of WyomingEntrepreneur.Biz, a collection of business assistance programs
at the University of Wyoming.
By Jim Drever, Wyoming Entrepreneur business adviser
"What do I look for in a business I want to buy?" -- Tom, Saratoga
The qualities you look for in a business you want to buy include satisfying personal needs and practical qualities that help determine whether you are getting a good deal or if you might be buying a sinking ship. Practical qualities are important for existing business owners not only for the day they want to sell their business but also because they support business success.
It helps if the business that you are looking at is something you are familiar with and if running the business will compliment your lifestyle. If you know very little about a business and how it works, you ought to try working at a similar business first so you really understand the challenges and to find out if it is something you enjoy before risking a substantial investment. You will learn a lot to successfully operate a similar business or you will learn a lot about a business type you do not want to have and why.
Any business that wishes to sell needs to provide at least three years of accurate financial information that can at least be verified through tax filings. From these, a buyer can establish cash flows, revenue and expense trends, and overall profitability. If there is no valuation, you would benefit to have one done through a private firm or the Wyoming Small Business Development Center.
Not only can you establish a price range, but you can also determine if the business will support your financial needs, understand the assets involved and also understand the business from a market point of view.
Some common red flags to look for when buying a business:
- If more than 15 percent of business comes from one customer;
- Only one supplier;
- The business' survival depends on any one person (including the owner);
- If there are human resource or trust issues among employees;
- Market changes (New competition, regulations, economic trends, etc.);
- Not really knowing why the business is being sold;
- Unclear list of assets, leases, intellectual property, unpaid bills;
- Recently bought/sold, frequently bought/sold.
There are a variety of issues to consider before you make the plunge, but you can learn if you are making a wise investment that can succeed and that you are paying the right price for it. Contact your local SBDC for help if you are buying (or planning to sell) a business.
The WSBDC is a partnership of the U.S. Small Business Administration, the Wyoming Business Council and the University of Wyoming. To ask a question, call 1-800-348-5194, e-mail email@example.com or write 1000 E. University Ave., Dept. 3922, Laramie, WY, 82071-3922.