I just have to apologize again for the absurdity of this question. It's just that we got majorly burned in a really bad business deal many yrs. ago (one of the reasons we're so friggin' broke - we just finished paying off the back taxes for that - DH was so trusting of the guy) and I'm really nervous.

Well, if you don't have any specific questions about the books/statements/returns, then I would start with pouring over your due diligence list to make sure you've reviewed everything - I would make sure you question any assumptions you are making with the numbers .... and you might also find the accountant a good resource for general industry related questions. Ask your attorney, he/she may have more specific suggestions given the nature of the deal.

The question is pretty broad - I hope you have your own attorney and accountant to advise. But very generally, if the business that you are buying is incorporated, you may want to buy its assets, rather than the stock of the company. When you buy stock, you are buying any undisclosed and future liabilities, including back taxes. If you buy assets, you start with a clean slate.

The numbers are pretty straightforward. Nothing has ever been held back - every bill, every tax return has been available for our review at any given time. No back taxes owed.

I just can't believe that the day is finally coming closer and I'm nervous yet excited w/ the anticipation.

At minimum, I would meet with your accountant beforehand and go over the books and have him give a checklist of the points you need to clarify. If it were me, I would bring in my own accountant to meet with their accountant.
When you go to the bank for a loan they are going to want to see projected and previous profit and loss statements and cash flow projections.
I am opening a new business and got my loan last year. Don't remember the exact books I read but I ordered many from the library about small business accounting to give myself a good grasp of what I didn't know. Are you using an accountant? If so, I say put them to work at the meeting.
Not a ridiculous question! I am interested in how the meeting goes. Good luck!

Ttodd, for me, it is impossible to give advice without knowing what kind of business you are buying. I am a bit worried that you are asking us. LOL! We are business owners of 28 years but I certainly don't feel comfortable giving advice on buying all kinds of businesses. KWIM?

Do you have complete confidence that your DH can run a business? I know my best friend's husband is NOT cut out for running his own business. Mine is. Doesn't make either one better or worse, just different people. You mentioned your DH was too trusting last time...

Cash flow is critical. If you are acquiring debt (equipment or other capital expenses) with the business, will you still have enough cash flow to pay your new loan, operating expenses, and pay yourself? If the business carries receivables, are they good (ie no bad debt writeoffs looming?)

I've seen alot of new business owners "wishful think" themselves into believing they can increase sales or reduce costs without really knowing if either is possible (although I believe it is always possible to squeeze costs out of a business - even the little things add up).

You are right to ask questions even if you think you already know the answer!

You might want to investigate having a non-compete with the current owners ... say 5 years. Yes maybe they are retiring or whatever but you just never know.

I know this is a stressful time but how exciting for you!

I manage a small business and I have worked hard to build up a cash cushion against economic downturns and for emergency expenditures. I would say the cash flow management is the most important part of my job. We have also worked hard to pay down debt and to take advantage of government grants and credits when possible.

Good Luck and have fun being your own boss!!

Linda

My husband owns a business also, for all said purposes. He has a *regular* job but he does alot of contract work, so it was suggested (due to taxes, etc.) that he get a business license, and basically, open a business. You can get alot of information from the small business administration. Also, have your own accountant, don't rely on the one the current owner is using. Our accountant directed us to the state department of revenue with some of our questions, etc. Our major worry was quarterly taxes, personal property tax, depreciation of equipment, that kind of stuff. While much of the paperwork I can do, the accountant is a life saver. We also at one point met with a lawyer.

tina

I'd want to make sure that you're not acquiring the business debts, and probably most important...check to see how receivables are paid. Does the business have to wait the full 30 days for payment, or is is COD? If there is merchandise (I'm assuming a retail situation), how much in receivables is out there?

When we sold our business, we had little to no business debt. We did not take out a loan for our business, built it up literally from our backyard. The buyer checked our books and even spent some time at our store to see how we ran operations. He must have been happy with what he saw (I know I ran a tight ship books wise) because we had a full asking price cash offer.

Problem was that within a few months of taking over our business, buyer changed the inventory line. Then he changed the name. Then he changed locations. Then he lost a LOT of customers. We had a no compete, but he went out of business before it was up. We ran that company for over 10, very, very successful years. He lost it within 3.

Moral of that story...don't mess with a good business model!

I don't think it's an absurd question. You sound like someone who researches things ahead of time so that she then feels comfortable going forward. This is a new venture for you and you're just trying to get all your ducks in a row.

Is there real estate involved in this business? Are you purchasing a building along with the business? Make sure there are no liens against the property.

And as others have mentioned please check with your attorney.

DH has been working closely w/ the SBA and their mentoring program over the past few yrs. It was here and there to get an idea of things in the beginning but this past yr. he has been utilizing them as much as possible.

I wasn't involved w/ the other business (he started taking it over before we met) and as I found out more about it way down the road it was too late. I kept saying 'Oh no! Now wonder it was doomed!'. Needless to say DH learned a lot from that situation and it's almost 15yrs later too. Large debt and crazy rent that kept getting jacked up monthly due to a last minute move that the owner wanted to make, turned it all over to DH (poor guy), said he was going to take the Summer off so DH could get his feet wet and then vanished.

The business is the furniture refinishing and repair business that he's worked at for the past 6yrs. Small family owned and operated since 1945. Technically the only debt is the new truck that was recently bought. All of the equipment and machinery is paid off as far as I can tell but I will surely confirm that tonight. According to the books the monthly supplies that are used are paid in full at the end of each month. Nothing carried over.

This business will be 3rd generation. The owners never had children and they used to shop at the previous business. When the owner decided he wanted to retire he was either going to close the business or find DH. He always remembered DH from the previous business and what type of person he was. So he tracked DH down and asked him if he would be interested in carrying on the business after training him and teaching him everything he knew.

Regarding the real estate and shop: It could go one of two ways should we decide to buy the entire property or not as it has a house on it that is a rental.

1. We buy the business and rent the building from the current owner while the land remains in his name and the house is still used as a rental (currently occupied by a steady long term resident). Then when either we're ready or the owner decides to sell the real estate portion we get first dibs at fair market value and we then own everything outright.

2. We buy the business, move into the house on the property and pay rent to the owner for both the house and the building. Then we buy the real estate in 2 - 3yrs. At the current projections we would be able to afford a sizable down payment on all of the acreage, house and shop in 2yrs and that takes into account the monthly loan payment to the bank. Based on the numbers in the account it would be projected that we could feasibly pay the entire business loan back to the bank in 5yrs if we wanted.

There is essentially no retail per se' as they don't sell anything. It is strictly refinishing and repair.

Golddust - you ask a great question. I think together we make a great pair - we pay attention to different details. He's people oriented and I'm detail oriented (obsessed).

Don't be worried that I'm asking you guys questions. I'm a firm believer that some of the best questions, solutions and answers may come from everyday people and those who may be 'outside' of a situation. And I value that (and you) very much.