When looking at buying a business typically a business profile or information memorandum will assist you with assessing the business. The challenge is to gather the information that has not been provided. Visit the business as a customer, observe staff and the surroundings, meet the vendor, know the competition and do your own investigations or engage an independent assessor.
Before presenting an offer to buy a business you need to fully investigate the information provided. This information should be forwarded by the Business Broker handling the sale in the form of a Business Profile or Information Memorandum.
Most brokers will request you sign a Confidentiality Agreement or Non Disclosure Document before releasing any information.
If this information is not supplied on request - be wary.
There are brokers out there that advertise businesses that are already sold, are ghost businesses that never existed or businesses that are losing money and therefore there is no supporting information.
They are the time wasters and should be avoided. If a broker does not call you back after an enquiry, move on.Information provided should include, as a minimum:
- Background of the business summary
- Financials including past P&L’s and sales history
- Copy of a lease, if applicable
- Staffing details and numbers
- List of equipment
- Asking price
Also, if this information is not available or still to be supplied by the vendor, there is a good chance there have been no enquiries or serious interest to date. It also should not be too difficult to find out how long the business has been on the market
It is in the brokers interest to keep you interested, so put pressure on the broker.
Information provided is helpful but your investigation should also include sourcing the answers to information NOT provided.
Visit the business as a customer, observe staff, look at the surrounds, know who the competitors are, watch transactions where possible, look up reviews and meet the vendor.
Do your own investigating or engage an independent assessor. This will give you the greatest insight into the business and whether its worth preparing an offer to buy.