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What To Look For When Buying A Retail Business

By Richard K Parker

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Published: 08Aug2009
Word count: 701
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There are so many factors involved when buying a business it could make your head spin. This is especially true when you are negotiating to own a business in the retail sector. Make sure that you do not leave any stone unturned and give yourself the very best shot at success in this highly competitive environment.

So where do you start? You need to understand what to look for and have a good grasp of the challenges you will face in order to bring any retail business up to its best performance levels. It is vitally important to understand why some businesses succeed and some businesses fail.

Successful businesses share many common factors - crucial components, if you will - and one of the first things you should do is to assess whether the entity you are considering has these factors, or may be modified accordingly.

When you own a business you need a great deal of professional advice and help and this is also the case when you are negotiating to buy a business. Look for professionals who have experience in your particular niche and sector of the retail business environment. When it comes to brokers and intermediaries, make sure that you understand that the business broker formally represents the seller and has a role to play - you should bear in mind their allegiance. Always maintain a good relationship with the seller, as he or she will be vital in the post contract stage and you should therefore maintain a professional relationship with the broker during the negotiation stage.

When you are in the process of reviewing a list of businesses for sale, make sure that you have itemized the important criteria. There are maybe as many as 70 key areas that you need to cover and when you scour the listings make sure that you look for all of these elements, good or bad. Extra care at this stage will whittle your list down to a manageable number.

When you have moved to the actual discussion stage, arm yourself with a list of critical questions to ask the seller. You need to concentrate and look for important indicators. Often, you can get a great insight into their background by couching your questions in a particular way. You should make sure that you pass this stage with a clear understanding of the business.

Financials are often very difficult to understand, especially for a layman. This is where your independent accountants and advisers come in and help you to understand the numbers. There are several things to look for and several pitfalls to avoid, at this stage. Know how to analyze the figures and draw your conclusions accordingly.

Whilst it is important to know how to value a business and you should use proven and tested formulae, you should make sure that you bring in your advisers at every stage to help you understand this process. You certainly do not want to over pay when you purchase business assets and goodwill. Sometimes it is almost impossible to use a strict formula to value a business, which may or may not rely on a lot of supposed "goodwill", and it may be necessary to construct an earnout formula to help you. If you do decide to buy a business based on your findings to this point, you will also need to make sure that you have covered all the financing elements and it is important to try and get the seller involved at this stage. This will inevitably focus the attention of the seller, as he or she will be involved with you for the forseeable future and it is in their best interests to make sure that they are also structuring a great deal.

When you come to the formalities of closing a deal, there are of course numerous legal and documentary issues to address. As you look forward, make sure that you have a very clear plan to help you through the transition, and on into the future. This is a whole new topic in itself, but you do need to make sure that the smooth running of the business suffers the least disruption, and that you do not "spook" the customers!

Richard Parker is the author of the How to Buy a Good Business at a Great Price series. As President and founder of Diomo Corporation - The Business Buyer Resource Center, his materials, seminars and consulting have helped thousands of business buyers realize their dream of buying a business. Want to find out more about business buying strategies that really work, then look no further than=> http://www.diomoretail.com

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