Questions to ask before Buying an existing business | Larry Mikel

1. LARRY MIKELL Questions to ask before Buying an existing business

2. START A NEW BUSINESS • Define the nature of the business • Create preferred type of physical facilities • Obtain fresh inventory • Make all initial personnel decisions • Latest technology & materials available • Select a competitive environment

3. NOT TO START A NEW BUSINESS • Problems finding the right business • Assembling the resources; Location, building, equipment, materials, employees • Lack of established product line • Production problems; start up • Lack of established market & distribution • Risk of failure higher then Buying existing business or Franchise

4. BUY AN EXISTING BUSINESS • Personnel are already working • Facilities are already available • A product is already reaching a market • The location may be desirable • Relations with banks and trade creditors • Revenues and profits are being generated • Goodwill already exists

5. NOT TO BUY EXISTING BUSINESS • Physical facilities may be old or obsolete • Employees may have poor attitude • Accounts receivable may be uncollectible • Location may be bad • May have poor financial standing • Inventory may be obsolete or in poor quality

6. QUESTIONS TO ASK BEFORE BUYING AN EXISTING BUSINESS • Why is it for sale • Are facilities suitable for future operations • Is the business operating efficiently • Financial condition • Is the price fair • Do you have necessary ability

7. STEPS IN PURCHASING A BUSINESS • Write specific objectives about the kind of business you want to buy. – Identify businesses for sale that meet the objectives. • Meet with business sellers or brokers to identify specific opportunities.

8. ■ Visit during business hours to observe the business in action. • Obtain accounting records for the prior three years. • Get important information in writing. – reviewed by a lawyer – reviewed by an accountant

9. ■ Determine how you would finance the business. • Get expert help to determine the price to offer for the business.

10. FRANCHISE OWNERSHIP • franchise – a legal agreement that gives an individual the right to market a company’s products or services in a particular area • franchisee – the person who purchases a franchise • franchisor – the company that offers the franchise for purchase

11. OPERATING COSTS OF A FRANCHISE • initial franchise fee – the amount the local franchise owner pays in return for the right to run the franchise • startup costs – the costs associated with running a business

12. ■ royalty fees – weekly or monthly payments made by the local owner to the franchise company • advertising fees – paid to the franchise company to support television, magazine, or other advertising of the franchise as a whole

13. INVESTIGATE THE FRANCHISE OPPORTUNITY • The FTC requires franchise sellers to provide detailed disclosure information at least 10 business days before finalizing a purchase. • The disclosure document should include the following: – contact information for at least ten previous purchaser who live nearest to you

14. ■ the fully audited financial records of the seller ➤ background and experience of the business’s key executives ➤ cost of starting and maintaining the business ➤ the responsibilities you and the seller will have once you have invested in the opportunity

15. EVALUATE A FRANCHISE • Study the disclosure document and proposed contract carefully. – All costs and royalty fees should be provided. • Interview current owners. – shills • business references who are paid to give favorable reports

16. ■ Research the franchisor’s history and profitability. • Investigate claims about your potential earnings. – Does projected local demand match potential earnings? • Have the seller provide, in writing, the number and percentage of owners who have done as well as they claim you will.

17. ■ Listen carefully to sales presentations. – Do not sign up immediately. – Do not fall for a promise of easy money. • Shop around. – Compare services offered by similar franchisors.

18. ■ Get the seller’s promises in writing. • Determine what will happen if you want to cancel the franchise agreement. • Ask for advice from professionals.

19. ADVANTAGES OF OWNING A FRANCHISE • An entrepreneur is provided with an established product or service. • Franchisors offer management, technical, and other assistance. • Equipment and supplies can be less expensive. • A guarantee of consistency attracts customers.

20. DISADVANTAGES OF OWNING A FRANCHISE • Franchise fees can be costly and cut down on profits. • Owners of franchises have less freedom to make decisions than other entrepreneurs.

21. ■ Franchisees are dependent on the performance of other franchises in the • The franchisor can terminate the franchise agreement. chain.

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