In Clatsop County, many businesses are owned by baby boomers who are looking for an “exit strategy” over the next several years. This may include passing down or selling the business to a family member, valued employee or an outside buyer. As we all navigate through these COVID-19 times, it may be an opportunity for a savvy business person to purchase an ongoing business that has been in existence for many years and has potential to continue to grow and prosper in the years to come.
What are the steps to be taken to see if this is workable, financially feasible and the right fit?
The value of any business is what a reasonable buyer and reasonable seller agree to. Typically a seller has a range of prices they would consider. They will offer the business for sale at the top of that range but understand a buyer will negotiate. A buyer has a range of prices they feel they can afford. Typically the buyer will begin negotiating from the bottom of that range. As long as those ranges have some prices in common, there is room for an agreement.
There are several ways to determine the worth of a business. The most important thing for a buyer to keep in mind is when and how much of a return on their investment they will get and is it better than can be obtained from other sources of investment. As a buyer it’s important to identify what is being sold. What are the assets that are included? What are the income streams and expenses? Are there any potential liabilities? Is there a non-compete agreement? How long has inventory been on the shelves? How well has equipment been maintained? Do customers sign contracts or are sales made on a walk-in basis? What is the reputation of the business? A commercial realtor or business valuation specialist can help review the package of what is being sold and give an opinion on what it is worth.
A lender is also a good source of an opinion on the value of a business.
Buyers who plan to finance the purchase of a business will need to have business financial statements and tax returns for two to three years. Those documents show how well the business has been operated and how well assets are being used to generate revenue. If financial documents show losses, be wary, the business may not be a good investment that will create future returns.
Buying an existing business has the advantage of existing customers and revenue streams. Marketing is in place. Employees are trained. The business has name recognition in the community. Lenders are more willing to consider loaning money because revenue can be verified. Sellers are often willing to include some training time in the purchase agreement. All of those add some value to the business that is for sale.
Before moving forward with the purchase of a business, do research into the business and the industry. Create a business plan that shows how this business will generate a return on your investment. Assistance is available through our Clatsop Community College Small Business Development Center with FREE and CONFIDENTIAL advising.
Let us help you navigate the steps and the vetting process. Contact us at bizcenter.org/Clatsop, email firstname.lastname@example.org or call 503-338-2402 to schedule an appointment, which is currently being done through ZOOM.