Buying and Selling Businesses – Tips

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12 / Oct / 2011

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Business Buying or Selling Tips

What makes a good business? Depending on who you ask the answers may surprise.

As a buyer you are buying a stream of cash, known as profits, net profit, cash flow or owner’s discretionary income.

What that needs to be will depend on the individual buyer. Buyers pay an amount to buy the future rights to that cash flow as long as it provides a return on their investment.

In selling a business, you are selling a purchaser the opportunity to make money.

Consequently the purchaser needs to have the appropriate accurate financial information to analyse the business.

The Purchaser will want to look to the historical documents to see how the business has performed in the past. They will want to see how the business is currently performing, and may base their future estimates on historical performance.

So, why do businesses sell for less than their worth?

In many cases, the owner or those who represented the owner did not put in the appropriate time and effort to prepare the business sale properly.

For too many business owners they concentrate during their time operating the business on the tax consequences of how the business is performing.

What they should really be concentrating on is the value of the business ā€“ its growth and its stability.

You cannot go through your time in the business trying to minimize tax and still expect to display maximum value when you go to sell.

The sale of a business needs to be planned for approximately five years in advance. This will allow sufficient time to display the business in the best possible way to a buyer.