Buying an existing business - advice sought!

AEdge

Hi There,
I have recently set up my own small (...very small!) business working as a freelance trainer (computer applications, mainly accounts).

Out of the blue, I now have an opportunity of buying an existing training centre business. I think it would be fair to say I know very little about what's involved in buying a business.

I have had some informal information on the business itself through a colleague of the vendor - I am told there is a very genuine reason for sale and there is currently €250K confirmed business in sales for this year, I have been told that it is being sold for €150K and there is the possiblity that the vendor will accept payments over a period of time.

While I have been working in this industry for 6 years now as a software trainer & consultant and know how to do the job etc I don't know where to start with this new opportunity.

I am meeting with the vendor for more of a casual chat than anything else but would really appreciate any advice on what questions, information etc I should be looking to obtain at this initial stage.

All help greatly appreciated.

Kind regards.

kluivert

You what to examine the accounts to the business and look at profitability of the business.

Look at the expenses, see if you could cut away some excess fat.

Look at the balance sheet and see what assets there is in the company.

Examine debtor days if any.

Look at the capitalised value of assets compared open market value.

Is there creditors. Is there security on loans. Any capital commitments on assets.

Is there a dependance on clients, or is there a vast customer/client base. What is the geographical area of clients.

For the business with expected turnover of €1m for 2006 based on current figures, I would question why the seling price so low, my first thought would be that there is loses in the company, look at the profitability over the last say five years. Is it going up or down.

Ask yourself will this match your plans for the future of your existing business. Will it compliment your existing business. Is it feasible and sustainable.

How does it affect your cashflow.

antoinolachtnai

There has to be some sort of earn-out for the guy who currently owns it. He can't just get his money and cut loose.

Like has been said before, be sure to budget the thing out to figure out how much cash you will really need.

onedmc

just be carefule with the "confirmed sale" I've seen many a confirmed sale disappear especially when the person that sold them leaves.

REDZ

Really examine the customers and reveunes, identify dependancies. ring up big customers to get thier views.

AEdge

That's great guys, thanks for all the advice!

AEdge

Antoinolachtnai can you explain further what an earn-out is or do you have any further info on what would be involved etc.

Cheers,
Thanks

Eoin

AEdge wrote:

Antoinolachtnai can you explain further what an earn-out is or do you have any further info on what would be involved etc.

Cheers,
Thanks

Good ol' google:

An arrangement in which sellers of a business receive additional future payment, usually based on future earnings.

http://www.investorwords.com/1627/earnout.html

derek27

'A very genuine reason for sale ' is not a lot to go on. i would suggest that you do some research to see if there might be plans by some other company/individual to open up a similar business in the area. perhaps the current owner of the business you are interesed in has knowledge of such an event and feels that his business is set to make major losses as a result. that is one of the principle reasons that people decide to sell a business.