buying a small business

[Redskin Rich]

Originally Posted by Mattyk72

There's a small local business for sale in my area and I'm interested in looking at it. My question is, when buying a business is it possible to request to see their financial statements prior to buying??

Matty, that is a must.

What type of business is it?

[MTK]

Originally Posted by Redskin Rich

Matty, that is a must.

What type of business is it?

Tanning salon with everything included. Computers, beds, etc., and an established client list.

[Redskin Rich]

Originally Posted by Mattyk72

Tanning salon with everything included. Computers, beds, etc., and an established client list.

Matty... if it is such a great business, why are they selling it? Remeber, they will probably tell you one story, but it will be another.... I own my business, but started it from scratch. Whenever I have looked at buying someone else's, you have to look at their motives to sell.

[Schneed10]

Originally Posted by Redskin Rich

Matty... if it is such a great business, why are they selling it? Remeber, they will probably tell you one story, but it will be another.... I own my business, but started it from scratch. Whenever I have looked at buying someone else's, you have to look at their motives to sell.

That and you have to do some serious analysis to determine what the right price is.

The price of a business is the present value of the expected cash flows. So you have to determine what profits the place is projected to take in each year over the next 5 years or so.

[Schneed10]

Originally Posted by Mattyk72

Tanning salon with everything included. Computers, beds, etc., and an established client list.

With a business like that, you'd want to know:

- Is there a mortgage on the salon, if so how much per month/year? If not, is there a lease on it, if so how much per month/year? Or is it owned outright?

- How much is the electric bill each month? (them things pull serious juice)

- How are the tanning beds and other stuff maintained? Maintenance contract, I assume. How much per month/year?

- How much are the other utilities per month?

- How many employees are there? How much are they paid (including benefits)?

- How many client visits do they do per year? If they can provide that information by calendar month, that's even better, because I'm sure their spring season is real busy while the fall is real slow. That would affect your cash management and is important to know.

- What's the average revenue per client visit (just divide total revenue by client visits).

- How much excess tanning bed capacity do they have? In other words, are the tanning beds always completely booked, are there always some open, or are there always a lot open. You'd like to know how much room you have to grow business without having to add more beds.