Buying a business, whether you’re doing it for the first or fifth time, can be a difficult task because of the due diligence portion of the transaction. Before making any business purchase, the facts must be uncovered through a comprehensive and thorough investigation. At VR Blue Ocean Business Brokers, we are here to assist you in identifying the following items that should be carefully looked at.
Reviewing the Industry
When you consult with a member of the VR Blue Ocean team, we will identify and review industries that closely match your interests and background. We do this through a SWOT analysis, which takes a close look at an industry’s strengths, weaknesses, opportunities and threats. From there we will determine the types of customers and vendors for an industry in which we feel you will be the most successful.
Examining Profit Margin
Every experienced entrepreneur knows that purchasing a business with a high profit is very important. The reasons for this can be discovered by performing a thorough examination of the books. For example, a business with a high profit margin may have a low overhead and employees who receive marginal compensation and no benefits. You have to ask yourself whether there will be a need to:
- Increase employee pay
- Include medical insurance in employee benefits
- Make changes to the business location
- Replacing machinery and equipment
- Change vendors
All of the above elements will factor into the profit margin, as well as whether there be an additional
cost outside of the asking price for the business. Performing a complete due diligence will help to determine how and why the numbers are stacked the way they are, and whether there are any unseen costs.
Determining Whether the Business is Tightly Operated
VR Blue Ocean Business Brokers advises taking a close look at how the business is operating to determine if you’re going to get more than what you bargained for. Sometimes businesses grow so quickly that they don’t have time to determine whether working capital costs and expenditures are growing out of hand. Looking at the running of a business’ operations is important, because it could be losing money if proper attention is not being given.
For example, is inventory not being documented through a Point of Purchase (POP)? Are there discrepancies in revenue being generated and what’s being recorded?
There have been many instances where potential buyers have walked away from a deal because the financials were not audited and there was no control over the flow of inventory going in and out of the business, so be sure to consider this before making any purchases.
Cash Flow and Discretionary Costs
When you are interested in purchasing a business, it is crucial to evaluate the business’ cash flow
statement to verify that it will continue to generate revenue after you purchase it. Be sure to determine if the seller’s costs are realistic, and validate such costs as advertising, research and development, expenses and maintenance. Make sure the seller isn’t reducing costs to project an inflated profit margin.
If you’re thinking of becoming the owner of an established business, VR Blue Ocean Business Brokers has listings in all industries and price ranges that you may be interested in. Check out these South Florida businesses for sale.
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