Tips for buying a business.

What criteria would you use to assess the value of a business you're interested in purchasing?

I heard a recent suggestion that the value of the business begins at zero and every Pound/Dollar above that needs to be justified by the seller. This paradigm shift puts the buyer in a powerful position to negotiate.

Here are my thoughts on factors that would make a good business buying opportunity:
1) Low asking price in relation to comparable businesses. (i.e. Low investment with high potential)
2) A sound business model that has the potential to generate repeat customers.
3) Depreciating fixed assets represent a small proporation of the overall investment.
4) The seller lacks confidence in the value of thier business (sometimes exhibited by a poorly run operation) This will tend to represent an opportunity to quickly add value once purchased.
5) Good management structure.
6) Enormous unrealised potential.

Those are my thoughts... What are your top buying factors?

BTW: here's a great resource if you're considering buying a business: Business Link.

1 comment:

  1. On point 5), Colt, how would you define and measured 'enormous potential'?

    A great question worth raising, involving an understanding of the market(s) the target business is in, its past performance and services/products they offer. The two principle questions i would want to ask are a) can we identify discriminators / USPs to stand out relative to competitors, and b) how to consultatively sell the value add from these discriminators, once the business is purchased?
    Food for thought!