Advice from a Tucson Business Broker for Experienced Business Buyers
Posted on Fri, Mar 05, 2010
As Tucson business brokers dealing with Arizona businesses for sale, we frequently deal with experienced buyers, or even professional acquirers, whose level of experience and familiarity with the acquisition process may give them an advantage over an owner who plans to sell a business for the first time. That said, regardless of a buyer's level of experience, the facts about a transaction need to be uncovered by thorough and rigorous analysis in each and every case. For there are many areas where a seller, whether intentionally or unintentionally, may have obscured the reality of the value of the business for sale in question. We plan to comment on these over the course of this and several subsequent posts to this blog.
The first of these areas is INVENTORY. It is paramount for a buyer, or representing business broker, to ask the right questions about inventory, such as:
- how often and how it is counted?
- how it is valued, by cost or fair market value?
- what percent of it is obsolete
- how many years of worth of obsolete inventory there is?
- what kind of reserve policy is in place to cover for the inevitable need to write down a portion of inventory?
Another area that business buyers ought to delve into carefully is DISCRETIONARY COSTS. Often, when preparing to sell a busines, the owner will scale back on discretionary spending in order to maximize profit in support of an inflated asking price. Areas that frequently get the axe are:
- marketing: advertising, promotion, public relations, etc
- maintenance: equipment and facility
- research and development
- technology upgrades
A buyer and his or her representing business broker must ask probing and persistent questions in order to understand the correlation of each these categories of expenditure to the company's long-term competitiveness.
While we are Tucson business brokers working with Arizona businesses for sale, we want to serve as a resource for business buyers and sellers anywhere, regardless of location. Check out the resources section on our Web site for more information. And leave us a comment below if you want to discuss this post.
If you'd like more information on this subject, please contact us at 520-327-4454 or visit us at www.allenandyoung.com