You’re looking for the perfect business to buy. You find several that interest to you, so you must compare them. How do you know which would be best? Here are several important things to look at.
Factors to Consider When Comparing a Business
Obviously it’s important to take a close look at financials. They’ll give you a good idea about how the business is doing, plus they’re the easiest to compare. Most Profit and Loss Statements, Income Tax Returns, and Adjusted Cash Flows are pretty standard.
The financials are important, but they don’t tell the whole story. You also want to look at inventory turnover, how long sales sit in accounts receivable, outstanding accounts payable, and debt-to-equity. This information will give you an idea of the company’s efficiency. At the very least, it may prompt you to ask questions that will give you a deeper understanding of the business.
You need to understand how critical the employees are to the success of the business. How long have key employees been with the company? Will they people remain with the company after a change of ownership? What are their relationships with customers, and would customers follow if they were to leave?
Compare the customer base for each of the businesses you’re considering. What are the demographics? How many customers are there? Is the majority of sales revenue concentrated with a few customers or is sales revenue distributed across many customers? Can you increase sales?
There are many thing to look at when comparing businesses for sale and deciding which one to buy. At the very least, carefully compare these items.
According to industry statistics, nine out of ten people who begin the search to buy a business, never complete a transaction. Purchasing a business is a huge decision that will impact your life and livelihood for many years. With so much at stake, you must choose the right business to buy, so take steps to be sure you make the right decision.