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How to deal with a Business Broker if you are trying to buy a small business

Business Brokers are not all alike nor are their processes. Here are 5 Dos and 5 Don’ts when working with a Business Broker:

Dos

  1. Make sure the business broker tells you, in writing, who they represent. Usually it is the seller.
  2. Make sure you know what your financial situation is before you meet with the broker. How much of your own money do you have to invest? Not how much you think you can get, not what your golf buddy says he’ll back you for… YOUR money!
  3. Make sure you know the minimum amount of income you need to support yourself when you buy a business. Not the most you’d like to make and not what you think you deserve…the amount you need.
  4. Be open minded about the kinds of businesses that might fit your financial situation
  5. Do your homework but do it quickly. Clear your calendar so you can take care of what needs taking care of in a timely fashion

Don’ts

  1. Don’t expect the business broker to re-arrange his whole world to accommodate your schedule.
  2. Don’t assume you know more than the broker ( you might, but don’t assume it)
  3. Don’t bad mouth a seller. If you’re not interested just leave it at that and move on.
  4. Don’t try to convince the broker you have resources and skills that you don’t have.
  5. Don’t be maybe, maybe, maybe…. a fast no is better than a slow maybe. Move through the process efficiently.

Keep these tips in mind and you’ll have a better chance of seeing the good businesses.

Due Diligence for buying a business Part 1

The due diligence issue when buying a business is a long topic with many items. I will break them down into a series of steps that when completed will make a reasonable starting point for due diligence when buying a business. Since all businesses are different this list may not be appropriate for every situation but it is (or should I say will be) a good check list.

A critical element is examining the sellers business tax returns…….BUT after you examine the tax returns and before completing the business purchase make sure you ask the seller to sign an IRS form 4506. This form will allow you to pull a transcript of the tax returns from the IRS that will confirm that the tax returns filed by the seller are actually the same as the tax returns you received! If they are different you need to get a good explanation as to why (and I’d like to hear the reason as well!)

As always, trust but verify!