Have you always wanted to get into business for yourself but didn’t want to go through the growth pains of starting from scratch? If so, this is for you! Maybe you’ve read one or more of the new crop of “how to get rich” books and have decided to take the plunge. You’ve decided that buying an existing business is the way to go. Chances are you have already looked at several businesses and may have narrowed your choice down to three possibilities. You would be comfortable running any of the three, but which one will be the success engine of your dreams? How to decide?

THE CHALLENGE
Brace yourself. Without question, you are going to have extreme difficulty getting accurate and current information from the present owners. Oh, they will show you the books, but most small business owners don't really want to talk about how they have been minimizing the tax bite these past years and don't want to tell you much of anything else about their business until you show some kind of real commitment. You are the stranger who may or may not put up the purchase money, and the tendency will be to keep you in the dark until you have made some kind of a real commitment. So, how can you get the confidential information you need, and what other information should you gather?

NARROW THE CHOICES
Begin with Marketing. Use one of the services of the Small Business Administration (SBA) to direct you in gathering basic information on market size, projected growth, market share, and demographics of the customer base for the products and services of the business. Talk with the present owner about the sources of future sales, what products or services should be developed or added, how much it will cost to develop this new market, and whether there are sales projections available. Plot all these with the SBA’s help to determine whether the market is static, declining, or improving.

Perform a sample marketing survey to determine the customer attitude towards the business. Use this information in evaluating the Good Will portion of the purchase. Examine the physical facilities to determine whether a location change or appearance upgrade is needed. Narrow your choices.

NON DISCLOSURE
Now gather the details. One simple way out of the lack-of-trust dilemma is to offer to sign a non-disclosure agreement stating that all information supplied will be held in confidence by you and your agents (see a lawyer for this document). Once you have completed the trust agreement, you can begin the in-depth analysis. Here is a basic list of information you should obtain.

FINANCIALS
Obtain tax records from the business for the past five years. If the business is a sole proprietorship, also ask for a copy of the business portion of the seller's tax records for the same period. The easiest way to obtain these is for your accountant to talk with their accountant. Be sure to get all of the standard financial position statements including a Profit & Loss, Source & Application of Funds, and the other charts and comparisons for the last five years. Ask for a current list of all assets and liabilities of the business as well as a current list of accounts payable and receivable. Ask if there is a list of projected capital expenditures. The easiest way to obtain all this is for your accountant to talk with their accountant.

PEOPLE
Inquire into the structure of the present organization including salaries, perks, and other benefits with the aim of tightening the organization. Ask the current owner to provide paid consultation services until you learn the business. Also make sure the owner will sign a non-compete agreement.

DECISION TIME
Use all of the information you have gathered to develop a three year projection of sales, expenses and operating costs, debt costs, and profit. Use your own accountant for this, and do it right. It is your future. Form a Monitored Focus Group (again using non-disclosure documents) and test your final three ideas. If you don’t know how to run a successful Focus Group, send $4.95 to Gator Publishing, PO Box 66300, Albuquerque, NM 87193-6300 and request the MicroBook: “Focus Groups In Action”.

(NOTE TO EDITORS: PLEASE INCLUDE THE FOLLOWING)
Paul Tulenko is a Small Business Success Consultant based in New Mexico. Additional tips and suggestions are available at www.tulenko.com or call 1-505-836-3617.