Adapted from content excerpted from the American Express ® OPEN Small Business Network

Buy an existing business can be less risky and more quickly profitable than start his own company from scratch. This is not without risk and success will depend mostly on your choice and a good assessment of the company you buy.

Here’s how to “take the temperature” to begin the assessment of a proposed buyout. The following steps are not intended to replace an in-depth study, you realize that once this first phase is complete. Click an item below to learn more about what you should be careful.

* Financial Statements
* Accounts Payable and Accounts Receivable
* Employees
* Clients
* Location
* Appearance of facilities
* Competitors
* Registrations, licenses, targeting
* Image

Financial Statements

Consider the financial statements and tax returns for 3-5 years to get an overview of the current fiscal health of the company and financial trends. Make sure the figures are accompanied by an audit report from a firm of chartered accountants of good standing. Do not accept simple financial reports or compilation because these documents are based on figures provided by the company. The financial health of the company is good? The financial statements correspond to returns? The sales and operating ratios correspond to the industry average? Your accountant can help you analyze these figures and determine the equity in your company.

Accounts Payable and Accounts Receivable

Check dates on invoices to see if the company keeps its accounts to date. The normal payment terms vary from one sector to another but the standard is generally 30 to 60 days. If the bills are paid 90 days or more after the date indicated, it is possible that the owner has cash flow problems. Try also whether any procedural order for payment has been filed against the company because of unpaid bills.

Pay particular attention to accounts receivable, the figures are often inflated. Look carefully at the dates to know how many accounts are unpaid and for how long. This is important because the more the customer account is old, the more its value is low and most likely it is that he never paid. While you’re there, make a list of the top 10 accounts of the company and check their creditworthiness. If the majority of clients are creditworthy but do not pay on time, you could solve this problem by adopting a policy stricter collection. If customers are financially unstable, start looking for another company.

Employees

For many companies, having good employees is a key element. You must determine the importance of each employee to the success of your business. You must also observe their work habits to determine if a staff with whom you could work. How long have these key employees they work for the company? Will they stay in the company if it changes ownership? What steps will you take to motivate them to stay? These key employees are they easily replaceable? What do they maintain relationships with customers? These they would follow if an employee were to leave the company? Observe also what role the current owner in the company. Is this a role you might play? There, among the present employees, individuals who could assume these responsibilities for you if necessary?

Clients

This is perhaps the most important asset you acquire with the company. Make sure they are as strong as other tangible assets. The clients have a special relationship with the current owner (long-time friends or family)? How long do they work with the company and what percentage of profits represent? Will they stay or they will leave when the company changed ownership? The current owner or manager seems he had a good relationship with clients? Is there a written procedure for managing complaints, returns, conflicts? The current owner said he made the effort to support the local community or sector?

Location

This is particularly important if you buy a retail business. How important is the location for the success of the case? How good is the location of this particular case? Is there enough parking spaces to facilitate the visit of customers? Trade is it dependent on transient guests? What are the future plans of the neighborhood? Is he going to change quickly, residential or business? The location will he more or less interesting because of anticipated changes in the neighborhood?

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Appearance of facilities

The environment within which the company can tell you much about it. Take time to consider the physical appearance of the place. How can you believe it? Your first impression was it good when you entered? The place is well maintained? Large maintenance are they expected – the roof leaks, peeling paint, poor signage? The reception for guests is well organized, as the place where the stock is stored?

Competitors

When you buy a company, you must understand the competitive environment in which it operates. Follow industry trends and their potential effects on the company you want to buy. This sector is very competitive there? Who are your competitors and what are their tactics? The price war is it common in this area? What the competitive environment has changed recently? Some competitors have closed shop? Why? You can find this information by contacting an industry association concerned or by visiting the publications.

Registrations, licenses, targeting

Make sure the main business licenses and other legal documents are easily transferable. Learn about the process of applying for the transfer and its cost by contacting the local administrative services and adequate national. In the case of a corporation, which country or which region is it attached? Works as does a foreign company in its own country?

Picture

The way a company is perceived can be a serious asset or a liability that can not be evaluated in a spreadsheet. There are a variety of intangibles that you must consider when assessing a company, how clients are received on how to answer the phone through if the company in question supports community or sector. Often called the category of “goodwill”. Talk to customers, suppliers, competitors, banks and other businesses in the region to learn more about the reputation of the company. Remember that it is very difficult to change a negative image.

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