Small Business For Dummies, 6th Edition

Chapter 8

Evaluating a Business to Buy

IN THIS CHAPTER

Conducting a comprehensive pre-offer evaluation of the company, its owners, and its employees

Investigating the company’s financial statements and lease contract terms

Considering the unique issues in franchises

In the American legal system, a person is presumed innocent until proven guilty beyond a reasonable doubt. When you’re purchasing a business, however, you should assume that the selling business owner (and their broker if they have one) is guilty of making the business appear better than it really is until you prove otherwise.

We don’t want to sound cynical, but more than a few owners and their business brokers have tried to make their businesses look more profitable, more financially healthy, and more desirable than they really are. The reason is quite simple: Business sellers generally seek to maximize the selling price their businesses can command.

Buying a business can be tricky because the business brokerage market rarely favors the buyer. The following list presents some of the obstacles you’re likely to encounter when buying a business:

• The necessary confidentiality of transactions: You can’t publicly investigate ...