Buying a Business For Dummies

Eric Tyson, MBA is a nationally-recognized personal finance counselor, writer, and best-selling author of Personal Finance For Dummies. Jim Schell is an accomplished serial entrepreneur, nonprofit founder, and executive. He spent twenty-five years as an entrepreneur and thirty years as a nonprofit founder and executive. Eric and Jim are co-authors of Small Business For Dummies.

• Introduction 1About This Book 1Foolish Assumptions 3Icons Used in This Book 3Beyond the Book 4Where to Go from Here 4Part 1: Deciding to Buy a Business 5Chapter 1: Preparing to Buy a Business 7Figuring Your Financial Fitness 8Assess your financial position and goals 8Measuring your net worth 9Telling good debt from bad debt 10Reducing debt 10Buying insurance 12Planning for the long term 12Shrink your spending 14Build up your cash reserves 14Stabilize income with part time work 15Assessing and Replacing Benefits 16Retirement savings plans and pensions 16Health insurance 17Disability insurance 18Life insurance 18Dental, vision, and other insurance 20Social Security taxes 20Time off 21Understanding Your Time and Financial Commitments to Buy 21Stepping Toward Buying a Business 22Enlisting Help from Top-Notch Professionals 23Start with free/low-cost industry resources 23Finding and interviewing reputable professionals 24Estimating the Cost of Your Search and Business Acquisition 25Calculating a down payment amount 25Tallying search expenses 26Finding funding 27Chapter 2: Is Buying a Business for You? 29Understanding Why to Buy a Business 30To reduce start-up hassles and headaches 31To lessen your risk 32To increase profits by adding value 32To establish cash flow 33To capitalize on someone else’s good idea 34To open locked doors 34To inherit an established customer base 35Knowing When You Shouldn’t Buy 35You dislike inherited baggage 35You’re going to skimp on inspections 36You lack capital 38You think you’ll miss out on the satisfaction of creating a business 38Recognizing Prepurchase Prerequisites 39Business experience and training 39Down payment money 41Do You Have the Right Stuff? 42Getting started with the instructions 42Answering the questions 43Scoring the test 45Analyzing your results 46Part 2: Picking the Business That Fits Your Situation 49Chapter 3: Determining Your Niche 51Why You Don’t Need a New Idea to Be Successful 52Choosing Your Business 54Consider your category 54Take advantage of accidental opportunities 56Inventory your skills, interests, and job history 56Narrow your choices 59Go in search of fast growth 60Take advantage of government resources 62Chapter 4: Finding the Right Business to Buy 65Defining Your Business-Buying Appetite 66Generating Leads 68Perusing publications 68Networking with advisors 69Knocking on doors 69Enlisting business brokers 70Considering a Franchise 73Franchise advantages 74Franchise disadvantages 75Evaluating Multilevel Marketing (MLM) Firms 76Being wary of pyramid schemes 77Finding the better MLMs 78Checking Out Work-from-Home Opportunities 79Chapter 5: Evaluating a Business to Buy 81Examining Owners’ and Key Employees’ Backgrounds 82Finding Out Why the Owner Is Selling 84Surveying the Company Culture 87Deciding on Terms 88Inspecting the Financial Statements 89Interpreting the profit and loss statement 90Reviewing the balance sheet 95Understanding key ratios and percentages 101Uncovering Lease Contract Terms 106Evaluating Special Franchise Issues 106Thoroughly review regulatory filings 107Evaluate the franchiser’s motives 107Interview plenty of franchisees 108Understand what you’re buying and examine comparables 109Check with federal and state regulators 110Investigate the company’s credit history 110Analyze and negotiate the franchise contract 110Part 3: Negotiating Terms and Sealing the Deal 113Chapter 6: Figuring Out How Much the Business is Worth 115Exploring Valuation Methods: Multiple of Earnings and Book Value 116Getting a Professional Appraisal 118Tracking Businesses You’ve Explored That Have Sold 119Tapping the Knowledge of Advisors Who Work with Similar Companies 119Consulting Research Firms and Publications 120Turning to Trade Publications 120Enlisting the Services of a Business Broker 121Chapter 7: Financing Your Deal 123Outsourcing Financing 123Taking advantage of seller financing 124Banking on banks 124Getting money from nonbanks 126Financing Yourself: Bootstrapping 131Chapter 8: Preparing a Purchase Offer 133Writing a Letter of Intent or an Indication of Interest (IOI) 134Drafting an Indication of Interest (IOI) 134Writing a Letter of Intent (LOI) 135Developing Purchase Offer Contingencies 135Allocating the Purchase Price 137Doing More Due Diligence 138Think about income statement issues 139Consider legal and tax concerns 140Part 4: Managing a Smooth Transition 141Chapter 9: Moving into Your Business 143Getting Important Things Down on Paper 144Considering the Business Entity 145Sole proprietorships 145C corporations 147S corporations 153Partnerships 155Limited liability companies (LLCs) 155Gaining Insight from Others 157Chapter 10: Business Owner Basics 159Minding the Details of Business Ownership 160Buying insurance 160Paying federal, state, and local taxes 163Negotiating leases 163Maintaining employee records 164Getting licenses and permits 165Signing the checks 165Outsourcing: Focus on What You Do Best 166Surveying the most commonly outsourced tasks 166Figuring out what to outsource 168Simplifying Your Accounting 169Introducing some common systems 170Choosing the system that’s right for you 177Controlling Your Expenses 178Looking at fixed and variable expenses 179Understanding zero-based budgeting 181Managing Vendor Relationships 182Dealing with Bankers, Lawyers, and Other Outsiders 184Bankers 184Lawyers 186Tax advisors 189Consultants 189Governments 190Chapter 11: Handling Regulatory and Legal Issues 191Navigating Small-Business Laws 192Complying with Small-Business Regulations 194Complying through licensing, registrations, and permits 194Protecting ideas: Nondisclosures, patents, trademarks, and copyrights 202A business prenup: Contracts with customers and suppliers 206Laboring over Employee Costs and Laws 207Part 5: Creating a Growth Trajectory 209Chapter 12: Keeping and Attracting Superstar Employees 211Motivating Top Performers to Stay 212Revisiting the Compensation Plan 214Reviewing the types of compensation 215Creating a compensation plan that works for your business 216Introducing Changes to Employee Benefits 217Including insurance and other benefits 218Seeing the real value in retirement plans 222Deciding whether to share equity 224Bringing in New Talent 228Training: An Investment, Not an Expense 232Parting Company: Firing an Employee 233Designing Flexible Organization Charts 236Valuing Employee Manuals 238Characterizing Successful Employers 240Flexibility: The bending of rules 241Accountability: Where the buck doesn’t get passed 242Follow-up: The more you do it, the less you need it 243Chapter 13: Keeping Your Customers Loyal 245Retaining Your Customer Base 246Getting it right the first time 246Continuing to offer more value 247Remembering that company policy is meant to be bent 247Learning from customer defections 249Recognizing and practicing customer service 251Dealing with Dissatisfied Customers 255Listen, listen, listen 256Develop a solution 257Expanding Your Customer Base 258Marketing defined 259Mastering the key elements of marketing 260Part 6: the Part of Tens 261Chapter 14: Ten (or So) Ways to Learn from the Experiences of Others 263Utilize Mentors 264Network with Peers 264Form a Board of Advisors 265Find a Partner 266Join a Trade Association 267Locate a Small Business Development Center 269Give SCORE a Try 269Tap into Small-Business Information 270Chapter 15: Ten Ongoing Tax Jobs 271Keeping Track of Your Small Business Revenues and Costs 272Separating Business from Personal Finances 272Documenting Expenses and Income in the Event of an Audit 273Keeping Current on Income, Employment/Payroll and Sales Taxes 274Reducing Your Taxes by Legally Shifting Income and Expenses 276Ensuring a Complete and Accurate Tax Return 277Tracking Tax Information on Your Computer or Smartphone 278Deciding When to Stash and When to Trash 278Replacing Lost Business Records 279Index 281