business for sale

Investors often look for already established businesses for sale. These already established business companies are sold by the owners for certain reasons. At times, investing on such a popular business can be rewarding for the investors whereas wrong, incomplete evaluation can lead you to a massive financial hazard. Here, you will discover some simple, unique methods of evaluating a passive income business for sale. If you’re willing to invest on such an existing business online, you have to take time and research extensively before you take over.

How to evaluate a passive income business for sale: methods explained simple

#1. Explore the history and track records

This serves as the basic method of screening an existing business. This method will help you shortlist some of the potential businesses to invest on. You have to do research on the company and explore the history and track records. There are several websites and companies offering primary evaluation services. You can hire an expert or you can cross check these factors by yourself. Discover more about the ups and downs, initial investments, turnover, financial lawsuits and other records to evaluate the business in the primary stage.

#2. Research and estimate the prospects and potentials

During this phase, you have to do the homework as the future owner of a business. You have to explore the potentials and prospects carefully. In this stage, you’ll need to work with the resources available online. You should also consult with the experts in the particular niche to learn about the sustainability and the future prospects of that sector. You should also consider local and international prospects to make a wise decision. A business should always be evaluated by its distant future prospect. If it seems to be a good income generator in future, you can carry on and negotiate with the seller.

#3. Learn about the competitors

This stage could be considered as a part of research phase. But exploring the competitors plays an important role even if you’re setting a business from scratch. You should be observing the competitors closely for a while. You have to learn how they’re proceeding with new ideas and features. You should try to have a clear idea about the competition and the extent to which you’ll have to work hard and stay ahead of all. A passive income business requires minute evaluation about the competitors. You have to compare and contrast to predict the outcome of an investment.

#4. Negotiate with the seller to get better offer

If you’re convinced about the prospect of a business for sale, it’s time to negotiate the price. You have to explore other similar businesses for sale and get an idea about pricing. This will help you create a good proposal and pricing offer. You have to understand the circumstances and follow up to get the best deal.

If you are looking at businesses for sale in Asia and think that the venture sounds interesting, then there are a series of key questions that you as the buyer should ask. This will make it easier to buy a business that meets your expectations. Likewise, if you are selling your business in Asia, then you should prepare answers for these questions as this will improve the chances of a successful business sale.

The first step prior to any ‘detailed’ exchange of information should be the preparation of a non-disclosure agreement. Your lawyer should assist you to prepare such an agreement that should ensure that both parties meet their obligations in terms of confidentiality. We would recommend that this is agreed fairly early in the process and this safeguards the seller of the business from potential competitors using the business sale for information gathering purposes.

Once, the non-disclosure agreement is in place we recommend the following questions be asked:

Why are you selling your business?
How many years have you been in business?
How many years have you been in business at the present location?
Did you create the business or did you buy it from someone else?
What is the legal structure of your business?
Do you have tax returns and financial statements that my accountant can look at?
Which bank do you do business with?
What types of insurance must your business carry?
What licenses are necessary to own and/or run this business?
How many hours did you work per week in your business?
How many employees do you have?
Do family members work in your business?
Will the family members stay after the sale?
Do you want be paid in installments or in full?
Will you stay and work for a while after the business is sold?
Do you have any long-term contracts or obligations to third-parties with the business?

Your accountant and lawyer can assist you with the questions themselves. The questions are critical whether you are looking at businesses for sale in Hong Kong or a business for sale in Indonesia or Saudi Arabia for that matter.

The specific information that will be required by a business broker or intermediary to prepare your business for sale depends upon the industry in which your business operates. However, certain information will be necessary and beneficial regardless of industry:

o Three to Five Years Historical Financial Statements / Tax Returns – Although a business buyer will be paying you for what the business is set to accomplish going forward (as of the date of sale), they will look to your historical financial statements (and tax returns) to assess the risk of your anticipated earnings stream.

o Interim Financial Statements for the last Three Fiscal Periods – Very few business transactions will close at the end of a company’s fiscal year. As a result, interim financial statements will be required by a buyer, and your broker / intermediary to fill the void between the company’s most recent fiscal year end statements and the current date / date of sale.

o List of Assets Included and Excluded in the Sale – Your broker / intermediary will need to demonstrate to a buyer exactly what they are getting in return for their investment. Having a prepared list of both tangible and intangible assets included and excluded from the transaction not only helps clearly present to a buyer what they are getting but also helps eliminate any discrepancies at closing.

o Schedule of Indebtedness of the Business – Whether the proposed transaction is an asset sale or a stock sale will determine the relevancy of this information. If only the assets are being purchased by the acquirer, the existing debt obligations will remain the responsibility of the seller and be of interest to the acquirer only to make certain that all claims to the assets are removed at closing. However, if the buyer is purchasing an equity stake in the company, they will need to understand the company’s full financial picture in order to make a buying decision.

o Prior Appraisal and Valuation Reports – Although a current valuation or appraisal may be one of the services offered by your broker / intermediary, providing previously completed valuation reports will help your representatives and buyers understand how your business has changed and grown over time.

o Business Plans and Projections – Although a buyer will look to the historical financial statements for an understanding of risk, price will be determined based on what the business is set up to achieve going forward as of the date of sale. Nobody has a better understanding of this than you, the seller. The best way to demonstrate your future expectations is to prepare a business plan that includes financial projections.

o Marketing Materials – Nobody knows your business and its products or services better than you do. Chances are you’ve been selling the benefits of your products and services to customers for years. There’s no need for your representatives to recreate the wheel. The benefits of your products and services to your customers are the same ones your broker / intermediary will need to sell to a prospective purchaser.

o Economic and Industry Data – Although your broker / intermediary will do their own economic and industry research, there may be information available to you as an industry insider that is not readily available through external sources. Providing this information to your broker / intermediary will help them cast your business in the best possible light when working with buyers.

o Copy of any company lease obligations – Similar to the schedules of indebtedness, these are most relevant when assumed by a buyer. However, even in an asset sale buyers will want to know that no third party claims exist to the purchased assets.

o Organizational Chart – There is a difference between ownership and management. Although the sale of your business will result in a change of ownership, most buyers will not want to see a change in management. The skills and expertise of your workforce and management are one of the things attracting the buyer to your business. An organizational chart will provide a new owner with a clear picture of identified roles and responsibilities.

o Copies and Descriptions of Patents, Trademarks, Trade Names, Existing Research and Development and Other Intellectual Property – Although the majority of this information will not be fully disclosed or revealed until the due diligence phase, having this information prepared in advance will allow for a more timely process and help to attract a diverse group of buyers.

o Stockholder Agreements – Similar to the schedule of indebtedness and lease obligations, stockholder agreements are most important to a buyer considering an ownership stake in the existing company. However, even a buyer purchasing the assets will want to know that no outside entities have a claim to these assets.

o List of Competitors – Providing a list of competitors to your broker / intermediary will not only help insure that the proper precautions are taken to maintain confidentiality but, it may also provide a starting point for uncovering potential acquirers.

Not all of this information may be readily available or necessary to complete your transaction. However, the more information that you can provide your broker / intermediary about your business the better job they can do in marketing your business. The result of your hard work will be more buyers brought to the table by your broker / intermediary, all competing for your business.

No body wants to sell a business that he has nurtured with his time, money and hard work. However, many times, business owners are forced to sell their business due to certain unavoidable circumstances of financial issues. The even worse part is that the process of selling a business can sometimes be very difficult. The first difficulty you come across before putting your business for sale is evaluation of its fair value.

There is so much preparation to do before putting a business for sale that it is often hard to decide the starting point. Preparing a list of tangible assets and classifying the ones that can be included in the sale can be a good place to start.

Among the tangible assets, real estate being the most important physical property usually needs the maximum attention. In addition to real estate, other major tangible assets, include vehicles, office equipments, operating equipments, and inventories. All of these assets may or may not exist in every business, but making a clear list of assets for sale will make things transparent between you and the buyer. Buyer will also get a clear idea about the things he is getting in return of his investment.

Real estate, office building, and land are usually the most important parts of any business. The location of business plays a major role in deciding the value of any business and therefore you can choose to treat real estate as a part of the business or can sell it as a completely independent entity. You may also choose to sell only the business while keeping the office premises under your control. In such cases, the buyer has the option to move the business to a new location.

Having all the office equipments in a proper working condition means the business needs no immediate investments in terms of infrastructure. This brings in a positive response for your business. Equipments that need upgrades and maintenance should be taken care of before putting your business for sale. If everything looks nice at the first appearance, it will definitely add value to your business.

Calculating the value of inventories is also an inseparable part of any business. It is advisable to divide the inventories on the basis of their current state – raw materials, half-made products, and finished products. It is better to keep away goods that are damaged or expired.

Sorting out the tangible assets before you put your business for sale also helps you avoid any sort of discrepancies in the future. It will also help you identify what remains with you after the selling process is over. At the same time, it gives the buyer an idea about what he is getting in return of his hard-earned money.

When handling a small business for sale, as seller should work on understanding the needs of a buyer and learn how to make that buyer a prospect. This process is called the buyer behavior study, through this; the buyer can be approached and analyzed from differed angles and under different circumstances.

Know facts – what are the things that motivate the buyer, why does he shift interest from one shop to another or from one brand to the other, how does he react to new products introduced to the market or delivered to him? Such questions are essential in knowing the things that interest the buyer. And through the information gathered here, a seller would create and product and promotion strategies.

However, it should also be understood that there is no real defined and tested theory of buyer behavior. Some ideas came from economics, psychology and other theories on social sciences. Many business firms and companies are continually researching on the buyer behavior to increase the possibly of sales with buyers. Yet, any seller would agree that buyers really are some kind of riddles. Despite efforts on selling even small business for sale, one cannot guarantee that a buyer who has first taken interest on it would push through the sale.

Buyers have innumerable desires and needs; all these also vary according to their security and aesthetic needs. And buyers have their own incorruptible way of meeting their needs and desires, just as long as it is within his or her means. If a buyer thinks that what a seller is offering is way far beyond his reach, a sale is then impossible to realize.