Many business publications are reporting that due to the downsizing of companies and the lack of a hiring surge, some people are looking to start or purchase their own business.
Our local Multiple Listing Service has many business opportunities of which some include the land and structure.
Owning your own business can be rewarding, challenging, and lucrative.
Owning your own business can also be tiring, time consuming, and can deplete your life savings.
In the mid 1980s, the Prescott Chamber of Commerce provided a pamphlet that issued a warning to potential business owners of the pitfalls of starting a business in Prescott because the failure rate was extreme.
The beauty of Prescott enticed too many people with rose colored glasses that did not do their due diligence and failed to comprehend the pitfalls of entrepreneurship.
The safer path to business ownership is to buy an existing business.
The seller should provide the buyer their accounting history and at least two years of federal tax returns.
Beware the owner that provides two sets of books or says that there is more profit than is shown on their financial statements.
If they would falsify records to the IRS, do you think they would have any qualms about falsifying records to a potential buyer?
The complexities of buying a business depend on the type of business.
Below are some of the basics:
Frequently, the initial step to purchase a business is by a Letter of Intent.
This is a non-binding offer that attempts to have an initial meeting of the minds between seller and buyer.
It starts the negotiation and will make the seller comfortable in opening the books to the potential buyer.
The seller in return will normally want the buyer to sign a confidentiality statement.
Once the buyer has the financials in hand, the task is to determine the value.
There are many approaches to value and an accountant’s advice would be beneficial.
Once the value is determined, the contract may be initiated containing the terms and conditions.
As complicated as a home purchase is, the purchase and acquisition of a business is even more intense.
For example, if equipment is involved, it is imperative that a UCC filing be done with the secretary of state’s office to assure that there are no liens against the equipment.
Because of the complexities, unless the buyer has expertise, they should seek professional assistance in drawing up a purchase offer.
For more information on small business, the SBA (Small Business Administration) Web site is a valuable tool. The URL is www.sba.gov.
Ray Pugel is a designated broker for Coldwell Banker Bishop Realty. Contact him at (928) 474-2216.