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To Become an Owner or Not? That Is the Question



Question: I am thinking about purchasing a business. What do I need to do?


Answer:

Arriving at the decision to purchase a business can be a difficult and time-consuming process that involves asking some tough questions and giving full consideration to the rigorous demands of business ownership. Many so-called entrepreneurs often discover at this stage that perhaps they really aren’t well-suited to be owners after all.

Prospective business owners relish the thoughts of a more independent lifestyle and better control over their career and earning potential, but haven’t really thought through the effort and planning it will ultimately take to turn their dreams into reality.

Fortunately, there are resources available locally to help guide people through the process of purchasing a business, including periodic workshops, and field and online counseling designed to help small businesses become established, grow and prosper.

Those considering the purchase of a business should be aware that there are specific programs covering all aspects of the process of buying a business. A tremendous amount of thought, effort and planning is involved in making the right decision and, far too often, people take the plunge into business without performing their due diligence. Purchasing and owning a business is a life-changing event and, consequently, should require an appropriate level of consideration.

Some of the considerations that can enter into the final decision about whether or not to buy a business involve the person’s industry knowledge, the company’s long-term prospects for growth, why the company is for sale, its present management team, cash flow and cash requirements, and the prospective owners’ personal commitment to making the business work.

Prospective buyers should be encouraged to fully analyze the financial health of the business they’re considering buying by carefully reviewing income statements and looking at balance sheets that reveal accounts payable and receivable.

The importance of obtaining pertinent financial information about the business cannot be overstated. A prospective buyer simply cannot have too much information about the business, including the seller’s yearly tax returns. Besides eliciting other information about the business from the seller, additional information can be obtained from trade associations that are familiar with the business, the bank, and customers of the business. These sources, individually or collectively, can give the buyer a pretty good snapshot of the business and its past and present performance.


Written by Rod Means, a retired entrepreneur who serves as a SCORE counselor and is president of its San Diego chapter.

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