Tuesday, December 27, 2005

Buying The Right Business

Just knowing the business's financial situation isn't enough. In order to investigate a business, find the answers to the following questions:
1. Is the location leased? If there's less than three years left on the lease, look into getting a new term or a guaranteed extension from the landlord. A good location means nothing if you have to move out in a year when the lease expires.
2. Will the employees stay? A key employee's departure could profoundly affect the business' future operations and earnings.
3. Who are the customers? Do any of the clients account for more than 10% of the business's gross sales? Does the company have a binding contract with these customers?
4. What about training? Is the owner willing to stay for a specified period of time to train you, or at least be available for phone consultations?
5. Who is your competition? Check the surrounding area and industry records. If you're planning to buy a doughnut shop and another one is due to open down the street, the company may not be such a good investment.
6. Who are the suppliers? Are they in good shape financially and able to continue providing you with the necessary supplies? Does the business have lines of credit with them?
7. Is the equipment in good working order? How old is the equipment, and are there warranties or service agreements?
8. Are there any judgments or lawsuits lurking?
For more information on buying a business, visit www.about.com.

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