Buying a business is never easy;  it requires a strategic approach.  One thing that I’ve learned from some of the best business brokers in the industry: never accept what the seller says as fact.  In an economic downturn, you would be surprised at how many business owners try to twist the numbers in their favor.  But when you work with an experienced broker, he or she will know how to find out the facts.  The best business brokers will consult with a number of different sources when necessary, including financial analysts and industry specialists, all with the goal of getting you the best deal possible.

According to a recent article posted on BizSale.com (“The Best Business Brokers Recommend a Second Opinion on Business Valuation”), the most important element of a business acquisition is business valuation.  There is no one simple formula to figure out how much a business is worth, so this is not always as easy as it sounds.  Business brokers will use a variety of different formulas, and will usually ask the seller which one they used to arrive at a selling price.  Ultimately, the value of a business will depend a lot on its gross revenues and assets, but it will also account for liabilities such as debt and overhead.  Intangibles such as local competition and reputation are also a factor.

Before a broker can make an informed bid on your behalf, it’s imperative that he or she has some knowledge of your industry.  For example, a manufacturing business might require a broker who has experience in this arena.

Looking at comparable businesses for sale on a business-for-sale by owner website is one way to figure out the going rate for a certain type of business.  While this is by no means a recognized method of valuation, it will help you get some insight into the price range for a certain industry.  For example, if you are looking to start your own 24-hour fitness center, a directory will show you other regional and national business models.  This way, you can find out where these businesses are doing well, and how long it usually takes for them to become profitable.  If you’re interested in purchasing a franchise, it will show you how much it costs to get started and what kind of support the franchisor offers to new owners.

Before you take the leap and buy an existing business, get advice from some of the best business brokers and learn about business valuation.

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