Bobbruch1@AOL.COM on sun 16 jun 02
Following on John's points, you also want to determine - if possible - why
the business is up for sale.
For instance, if they are the only supplier in a large area, and they found
out that a well funded group was planning to open a competitive franchise,
then nothing on the books would be relevant. Also, if the zoning laws were
to be changing, as happened with my local ceramic supplier, then the way you
would do business would change. If the seller knows of something like that
and is looking to sell before it becomes public knowledge, you might not want
to buy the business. I do not know if an attorney could write a contract
(much as can occur in a house purchase) which would protect you in the event
that these folks are selling for dubious reasons which could cause you harm -
and force them to be forthcoming. Also, you want them to attest that the
financial records are real and not "cooked."
<<<<
Subject: Re: buying a business
Buying a business is a big step. Good luck. I would only make a couple
points. Neither a client list nor an exclusive distributorship have any
value at all unless they deliver profits to the bottom line. My point
is: as a buyer don't place any value on them. Insist on seeing the
last three or so year's books and do your valuation only on how much
money has been made. You might add a teensy bit if you see some very
obvious ways the profitability can be improved, but not much--that is
value that should accrue to you--not the current owner--because you did
it. Getting you to put value on things that haven't contributed to the
profitability of the business is one of the oldest tricks in the books.
If it has contributed to the profitability then it will show up there.
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