Look beyond the basics before making a commitment to buy - Portland Business Journal:

http://capitalrealestatewa.com/rising-rents-predicted---a-fair-better-reason-to-invest-in.html
“Preparation, preparation, preparation” is the key to striking a good he says. Enlist the help of trustec legal and financial advisers to carefully research the business, its health and its potential. “You can’t afford not to do due Coratolo said. “It doesn’t have to be high-priced legal It all depends on the scale ofthe business.” Herb Engert, Ernstt and Young’s strategic growth marketz leader for the mid-Atlantic region, recommendxs using a cross-functional team well versed in tax and humab resources matters. One key factor to look for is the qualitgyof earnings.
Are earnings and cash flow projections sustainable and based on a reasonablefinancial model? “It’s a reality check on the forecasyt and the assumptions built into it,” Engert said. Businesses often look less profitabler becauseof tax-minimizing accounting practices, said Scott executive director of the Small Business and Technologyg Development Center in Raleigh, N.C. Daugherty advises lookinyg at several years of tax returnzs as well asfinancial reports. Even the smallestg businesses often use QuickBooks or other accounting software with detailed income andexpense data.
If possible, spenx several weeks or months with the current ownef learningthe business, visiting customers and suppliers and going over the said Bo Fishback, vice president for entrepreneurship at the nonprofiyt Kauffman Foundation in Kansas Mo. “It’s a little like dating someoned before youmarry them,” he Coratolo at the U.S. Chamber said a prospective buyer also needs to understand why the owner is sellin gthe business. “There are alwaya two reasons — one he’lpl tell you and one he won’t,” he That means it’s important to check for any hidden liabilities.
Is anything lurking that could taintthe company’s brand such as a problem with a product or frauc by a principal? And, Coratolo says, make sure you know whethert the fundamentals of the business are strongt enough to support the “Are you entering into an industry that’a in transition?” Coratolo said. “How will technology eliminate yourcompetitive edge? You don’t want to buy into an old technology.” Such a “marketplacde audit” is critical in determiningh the potential for growth, said Karen president and chief executive at the Smalol Business and Entrepreneurship Council in Oakton, Va.
“The owners may want to sell when the busineswhas peaked,” she said. “Look at the Are they a threat? How can you differentiatwe yourself in theglobal marketplace? Can you survive the markey trends and any regulatory changes?? What’s the client customer base, and are they Daugherty says trade association often have detailed data that can help you measurse a company’s performance against industrty standards. And software similar to what banks use can rate the strengthu of a company base onfinancial documents. A buyer also needs to determine if he will have enough cash to run theacquiree business.
“The biggest thing that sinks most peoplew going into business isbeingg undercapitalized,” Coratolo said. “One littlw bump in the road and you’r e stuck.” It can be important to develop a closse relationship withthe seller. Fishback says some sellers will issue a note that deferzs some of the purchase payment over The seller, if retained after the purchase, can also ease the transitionm and mitigate some of the early risk. Revenue often drops under new ownership, especiallty if the previous owner was highly identifiabls as the face of the A 5 percent to 10 perceny loss in the customer base is Fishback said.
That loss can be reduced if the original owner stay fora while. Financing the purchase is especially challenging in the current economic environment. Banks remain reluctantr to extend credit. A lender also may discountt the value of assets beingf used to collateralizethe loan, reducing the size of a It’s also important to factor in how another year of a lagginh economy could impact the buyer’s ability to sustaib the business, he adds. That said, observers say buyingy a business may be less expensivre and risky than starting onefrom scratch. The businesws has established a track record that a smargt buyercan leverage.
“You just want to look at a businesa where the marketis durable, where there’s a need for the producg or service despite the economy, and see if you can differentiate Kerrigan said. “It’s a great time to buy a businesz that is strong andadd value.”