Author: Site4business.com

One of the most important steps you will take towards buying a business will be to make a sound judgement on the viability and true worth of what you are buying. In a sense, you must play the part of a good detective and uncover the truth about the business you are buying. The first assessment you must make in evaluating a business for sale is to review its history and the way
it operates. It is important to learn how the business was started, how its mission may have changed since its inception and what past events have occurred to shape its current form.

You should also understand the business's methods of acquiring and serving its customers and how the functions of sales, marketing, finance and operations interrelate.The business's financial statements, operating documents, and practices should be also be reviewed thoroughly.

EVALUATION

The following are the main sources you should use to evaluate a business for sale:

BALANCE SHEET

Ask to take a look at the balance sheet of the business. This should give you records for accounts receivable, inventory, marketable securities, real estate, machinery and equipment, accounts payable, accrued liabilities, notes payable and mortgages payable.

INCOME STATEMENT

Check the income statement. The potential earning power of the business should be analysed by reviewing profit and loss statements for the past three to five years. The business's earning power is a function of more than bottom-line profits or losses. The owner's salary and fringe benefits, non-cash expenses, and non-recurring expenses should also be calculated.

FINANCIAL RATIOS

Check the financial ratios. While analysing the balance sheet and the income statement, sales and operating ratios should be calculated in order to point out areas requiring further study. Key ratios are the current ratio, quick ratio, accounts receivable turnover, inventory turnover and sales/accounts receivable. Look for trends in the ratios over the past three to five years.

ODDS AND ENDS

Find out the situation with the business's leases, personnel, marketing, patents, taxes, legal issues and competitors.

OUTSIDE HELP

These factors for evaluating a business have to be carefully scrutinised and weighed. Seek out professional assistance if needed to interpret the significance of the information. In most instances, all of the business records should be made available to you. In some cases, however, certain information may be withheld until a bona fide offer, contingent upon obtaining that information, has been made.

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Author: Site4business.com

If you have been looking online to buy a website, and haven't found one that is worth considering, then you need a better way to go about this process! First, you need to adjust your thinking. Keep in mind that a website for sale listing will only give you a snapshot of the business. These listings cannot outline everything about the website.

First step. Looking through the business listings.

If you spend your time searching endlessly for a website you'll probably give up with no results. This is a common reason why 90% of the people who begin the search to buy a website never complete a transaction. If you want to participate in the tremendous wealth being generated by the internet, then you need to make the transition from "looker" to "buyer".

Communicating with the seller is critical to the business buying process. It is the best way to gain focus and clarity on the right business for you. Starting today, when you look at a listing, I want you to do the following:

Contact the seller or intermediary
Sign the necessary confidentiality agreements
Ask your key questions when they contact you
If satisfied, immediately arrange a phone call with the seller
Make it your goal to communicate with at least five websites over the next 30 days. I can assure you that by doing so you will feel completely rejuvenated about the buying process.

From these exchanges of information you will be able to either eliminate or pursue each business. As you communicate with more sellers, you will become clearer about what you want and don't want in a website. With this clarity, when that right website presents itself you'll be able to pounce right on it and get a deal in place.

What are the key motivators for people to buy a website?

Before making a decision to purchase a website, a buyer should understand his or her objectives to make sure those objectives can be met by purchasing a particular website. Surveys of people purchasing websites reveal similar responses. Surprisingly, making money is not at the top of the list. Here is a list of the typical answers, in their order of importance:

I want to control my own destiny.
I would be happier if I worked for myself.
My current work does not take advantage of my skills and abilities.
I want to make a lot of money.

Should I start my own website or buy an existing website?

An existing website has a historical track record (good or bad) which can be used to evaluate the website. An existing website has usually shown there is demand for its products or services, and it should have, among other things, detailed financial records. Sometimes, a seller of a website will agree to help to train a new owner. These are important factors because many websites tend to fail during the early stage of their development. On the other hand, there can also be disadvantages to buying an existing website. A buyer will be assuming an established website culture and infrastructure which may make implementing changes more difficult. Also buyers will generally have to pay a premium for an existing website.

What should I be looking for in a website?

A buyer should only consider a website he or she will feel comfortable owning and operating. The time and effort which will be required is an important consideration as is how much the buyer can afford to pay for the website. The amount of cash the buyer needs to regularly take out of the website is very important, especially if the website is to be the buyer's only source of income. Because many experts believe you should not purchase a website unless you can make it better, it is helpful if a buyer has some definite ideas on how to improve the purchased website.

Can I obtain financing to help me buy a website?

The availability of outside financing will depend upon the asset base of the website, its operating history, collateral availability and projected cash flow - the same issues considered in all business lending.

How is the asking price of the website determined?

Sometimes the seller will simply make up an inflated asking price to determine if there is any interest in his website at the inflated price. Other times, the seller will obtain a professional valuation of the website.

Should I hire an attorney?

The answer to this question depends a great deal upon your appetite for risk. If the purchase price represents a significant amount of money to you, then it is a good idea to retain an attorney to review the necessary legal documents. It is important that the attorney you hire be familiar with business acquisitions to be as effective as possible during the process.

Why is confidentiality so important to the website seller?

Typically, confidentiality is very important to a seller. It can be damaging to a website if it is known that it is for sale. Customers may not be interested in buying from a website that is up for sale and competitors could use the information to their advantage.

What is due diligence?

Due diligence is a systematic process for acquiring and analyzing information to help a buyer or seller to determine whether or not to proceed with a proposed business transaction. The information obtained relates to all aspects of the website to be purchased. Due diligence should include both quantitative information, such as sales and other financial data, and qualitative information, such as an assessment of the existing website, security systems, existing relationships with suppliers and customers and other matters. Sometimes the information to be reviewed can be quite technical or industry specific. It is important that the person doing due diligence have a complete understanding of the information being reviewed.

During the due diligence process, there are some significant warning signals. Be wary of the following:

The seller has imposed an unrealistic time frame for the transaction.
The seller has withheld key information.
The explanation for selling the website is not logical.
The financial statements seem “to good to be true”.
The seller has presented any information that is significantly misleading.
The seller is not willing to be available after the sale.

What are the main reasons for the failure of a website after it's bought?

The price paid for the website was significantly over market value.
The due diligence procedures were not adequate.
A previously dependent asset was unable to survive without support (i.e. sales to related parties or below market debt financing)
A change in business environment created unexpected problems.

Tags: become entrepreneur, broker business business, broker business buy, business buy case study, business catalog, business for sale, business forsale, business franchise to buy, business marketplace, business on sale, business's for sale, business-for-sale, businesses-for-sale, buy a business, buy a business by owner, buy a business web site

Buy An Existent Business or Start Up Your Own Business

Author: Site4business.com

Most people in the market to buy an existing business come from one of two camps. On the one hand, you have people who wanted to start their own business, but who were daunted by the amount of research and paperwork. On the other hand, you have people who have already started their own businesses, and who are looking to purchase another. Some people are scared off by the amount of work required to create business plans and models, to find real estate and lawyers and willing investors, and all the other details that must be ironed out before a new business can take flight. For them, buying a pre-existing business may be the perfect way to sidestep the lengthy start-up process. The main benefit to buying an existing business is the reduction of energy that must be expended to get a new business off the ground. Without these sleepless start-up nights, you can have more time to concentrate on making your business grow and prosper. By buying an existing business, you are also buying the client base and name recognition that comes with. If you haven't done your homework on what people think about the name of the business you wish to buy, now may be the time. The “unquantifiable equity” of positive public opinion can mean the difference between a success and a failure. Another bonus that comes with purchasing an existing business is that the return on your investment begins immediately. With a start-up, you must wait until your business is completely set up, and for customers to start coming in before your cash flow can begin. On the down side, many existing businesses have higher purchasing costs, due to the fact that you are purchasing the successful (hopefully) business model in addition to the inventory, branding, previous advertising, and positive public opinion of the customer base. With a start-up, the success or failure of the business model is still unknowable, so the total price is usually less, although securing financial backing may be much harder. One other option is to purchase and open a franchise from a pre-existing company. The costs involved with buying a franchise are usually lower than those attached to buying a successful business outright. In the end, the decision of whether to buy an existing business or to start up your own business model depends on yourself. Do you mind making business models and analyzing potential cost/revenue differentials? Can you make connections and secure loans? How is your credit? Do you have a potentially successful business model under your hat? Ask yourself these questions before taking the plunge one way or the other.

Tags: become entrepreneur, broker business business, broker business buy, business buy case study, business catalog, business for sale, business forsale, business franchise to buy, business marketplace, business on sale, business's for sale, business-for-sale, businesses-for-sale, buy a business, buy a business by owner, buy a business web site

Best Name For Your Business

Author: Site4business.com

Naming your Business Start-up businesses can save a lot of time and trouble – not to mention money – if they do some basic checks on their proposed trading name and/or their product and service names before they put them into use. Very often, start-up companies spend large sums of money preparing signage, stationery, uniforms and advertising, only to find that a trademark registration (or application) for their chosen name already exists. If this is the case, any attempt to register the name will result in opposition proceedings at the Trademark Registry from the owners of the existing trademark rights. Companies are then faced with the difficult decision of either renaming the business and wasting the initial investment in design and print costs, or facing legal action, and risking the loss of financial and management resources during the critical start-up period. This easy-to-use website will tell you if there is already a trademark or trademark application for your chosen name or a similar one, and provides a good overview of intellectual property rights and regulations. Your Website Another regular problem which arises for new businesses is the registration of a website domain name by a third party that incorporates your trademark. This can be difficult to remedy, particularly if the third party does not respond to correspondence. This wait can be damaging if you are losing potential customers who are being sidetracked by domain name similar to your own. To ensure you avoid this problem, register your domain name as soon as you can. The process is relatively cheap so it's worthwhile considering registering not just the site name you want to use, but similar words or abbreviations for your site, too. This avoids the problem of rival companies registering domain names that use the initials of your business, which can mislead customers and threaten your business's reputation. A good example of this is a recent case involving Manchester United striker Wayne Rooney. Rooney approached the World Intellectual Property Organisation to prevent another person from using his name as a web domain name. The third party in this instance had registered himself as the owner of the domain names WayneRooney.com and WayneRooney.co.uk. Trademarks It's important to remember that you can make money if you register your trademarks. You are not only entitled to costs and damages if a third party infringes those rights, but you may be in a position to grant a licence for future use by the third party. You are well advised to: Register your trademarks to maximise your legal protection; - Use the * and ® notices correctly on your brand names; - Get free publicity by making sure your licence agreements require your licensees to print on all your licensed products or their labels the words ‘used under licence from [your name]'; - Conduct trademark searches before printing your stationery, to make sure you are not infringing an existing trademark. Copyright Use the © notice and date on which your work was originally created; post yourself a copy of the original, dated and signed copyright work and keep it safe; ensure that any licensees are obliged to include a ‘used under licence from [YOU]” notice by including this obligation in their licence agreement; and make sure you do not copy works that are copyright protected, unless you have prior authorisation from the copyright owner. Design rights Register if you can – this gives you a monopoly right and costs very little to do. There have been recent changes to what can be registered and ‘originality' (novelty and individual character) is no longer a requirement, as of 1 October 2006. Certain design rights may exist automatically without registration being necessary, but this does not mean you cannot require a licence fee if a third party wishes to use your design.

Tags: become entrepreneur, broker business business, broker business buy, business buy case study, business catalog, business for sale, business forsale, business franchise to buy, business marketplace, business on sale, business's for sale, business-for-sale, businesses-for-sale, buy a business, buy a business by owner, buy a business web site

Author: Site4business.com

When it comes to choosing premises for your business, it's a balancing act.

You'll have to satisfy the needs of your business, your employees, your customers and your business associates. And yourself of course.

Your choice of premises is always going to boil down to what type of business you own and the amount you can afford. But before your search begins, you need to decide what your needs are.

These will include the size and layout of the property as well as the appearance of the building. You may have special requirements in terms of structure, too.

For your employees, and visitors, there needs to be a range of facilities such as toilets and a kitchen as well as suitable access and adequate parking space. Then there are also the utilities to think of, in terms of power and drainage.

Your choice of location will have a huge impact on your premises. A prime location means higher cost – but what constitutes a prime location, and how important location actually is, varies depending on the type of business you own.

For example, retail businesses will need to be in town centres or retail parks/shopping centres to capture passing trade.

A factory on the other hand will need bigger premises, so a more remote location, where the land is cheaper, will make more sense.

Good public transport links are crucial wherever you are, so you can keep both employees and customers content.

Having the option to alter, expand, or to simply leave your premises altogether is of paramount importance.

This element of flexibility is something that Ian McRae, principal of Chadwick

McRae Chartered Surveyors, says should be at the front of your mind when looking at prospective premises.

“It's wise to have both an entry and an exit strategy,” he says.

“This comes down to an element of flexibility, you should always have one eye on the future – say five, 10, even 20 years ahead.”

Ian adds that professional advice and help from a chartered surveyor is often invaluable, especially if you're entering the commercial property market for the first time.

“You have to understand that when you meet up with landlords you are dealing with expert property professionals. Just because you've bought a house you are still entering an area where you are a rank amateur. So I would strongly advise you to seek professional advice.

“Every situation is different, but when I have a client I ask them ‘What is your business? Tell me about your business and where do you see it going?' From this you can choose the correct premises for a company.”

He adds that he has seen many business owners who are looking to rent often fall down at the first hurdle because they don't try to impress their prospective landlords.

“Many prospective tenants are bad at selling themselves.

When a landlord is showing you round a property be mindful that he will be weighing you up and deciding whether you're capable of paying on time and keeping him or her happy.”

A spokesman for The Royal Institute of Chartered Surveyors (RICS) explains how a chartered surveyor begins the process of helping a start-up find premises:

“We will create a brief that will ensure you consider all relevant issues such as location, the nature of your business, your staff requirements and ways of working, before searching amongst our own contacts for estate agents and economic development units available in your area.”

But if you do prefer to go it alone, then there are numerous places to search.

You can look at the internet, get in touch with your local council, speak to an estate agent or even look at adverts in the window of your local newsagents.

Alternatively you could employ a commercial agent. This is someone who has expertise in the property marke t and will keep you up to date on developments for which you pay them a commission.

Tags: become entrepreneur, broker business business, broker business buy, business buy case study, business catalog, business for sale, business forsale, business franchise to buy, business marketplace, business on sale, business's for sale, business-for-sale, businesses-for-sale, buy a business, buy a business by owner, buy a business web site

Tags: become entrepreneur, broker business business, broker business buy, business buy case study, business catalog, business for sale, business forsale, business franchise to buy, business marketplace, business on sale, business's for sale, business-for-sale, businesses-for-sale, buy a business, buy a business by owner, buy a business web site

Author: Site4business.com

What Type of Business Should You Buy?

This is almost one of those 'How long is a piece of string?' questions. It is, however, something that should be given a lot of thought.

No two people will have exactly the same skills, aims, ambitions or financial resources, so it is impossible to provide a single solution for everyone. However, this article presents the key issues that need to be thought about, and will assist you in thinking it through in depth before embarking on your search for the right opportunity.

What are your skills?

All of us have skills in one area or another, and obviously your particular skills need to be taken into account when deciding on a business to buy. At the most simplistic, if you have worked in a certain type of business for someone else, say a hairdresser's or confectioner's for example, you probably have most of the skills needed to run a similar business yourself. If, on the other hand, you have worked in a job that has not provided you with particular skills relevant to running a small business, you will need to consider businesses that do not require skills only acquired after years of training. Consider what skills you would have the capability and aptitude to acquire quickly.

What skills and aptitudes are required?

Some businesses require only generalised skills, and others more specialised ones. It is impossible to give a comprehensive list, but here are some examples to illustrate the point. Running a small sandwich bar or 'greasy spoon' is very much like running an overgrown family kitchen. That's not to say that it is easy, but learning to scale-up what you already do at home would be relatively straightforward. On the other hand, running and la carte restaurant is a totally different ball game. If you have been a chef, then fine. However, if you will have to rely on employing a chef, then you are taking a huge risk. What happens if the chef leaves overnight without warning? It would take years, if ever, for you to be able to step in and take over the kitchen at short notice.

Running a small convenience store is generally straightforward, but like the a la carte restaurant, you could not consider buying a specialist butcher's shop unless you are trained.

Slightly less obvious is accounting requirements. A retail business, where the customer pays at the point of sale, is fairly easy to run with a simple cash book. However, if you are running a business-to-business trade, where your customers expect trade credit, then you are going to need to run ledgers with your customers' accounts, send out statements and follow up by phone, letter and in person to chase late payment.

If it is the type of business where it is necessary to submit detailed quotations, is your English good, your maths OK and are your fingers quick on the keyboard?

In summary, when you consider types of businesses, think about how you will need to be spending your day, and whether you can manage or learn all the tasks you will have to undertake. Possibly your partner will be able to cover your weak areas.

What are the physical demands?

One factor which is easily overlooked is the physical demands that many businesses place on their owners/operators. If you have been working in an office, sitting at a desk all your working life, when you run a shop standing on your feet all day you may find that you have terrible back pains.

In the pub, when you had planned that your husband would be responsible for changing the beer barrels, if a regular is waiting for a bitter and hubby is at the bank, you are going to have to do it yourself.

All retail and restaurant/cafe type businesses, as well as many others, involve a considerable amount of physical work. Man or woman, you need to consider whether you are ready for this and whether you are going to be able to cope with the physical demands that may be involved over a sustained period.

How much risk is involved?

All businesses involve a certain degree of risk. However, some businesses are more inherently risky than others. You need to decide:

• What risks can you handle, given your aptitudes and skills?
• How much risk are you willing to take?

For the purposes of this discussion, risks can be broadly categorised as external risks and internal risks.

External risks

External risks refer to risks external to the business itself. These risks are largely outside your control once you have bought the business, and can include all or some of the following;

Location

Some businesses are very sensitive to location (hotels or general retail, for example). You can obviously check what you think of the location before you buy, but there can always be environmental changes after you have bought the business that you could not have anticipated, and which fundamentally affect the business. Your hotel, which was nicely situated on a busy road, is now in a back street due to the new bypass. The handy public car park next to your convenience store has been sold to big supermarket. It could be even simpler - the council decides to put double yellow lines in front of your parade of shops,

Technology

Changes and enhancements to existing technology could affect your business. Many small garages are unable to service some of the latest cars which have sophisticated computer and electronic systems.

New gizmos may appear and reduce the demand for your services. Digital cameras are increasingly reducing the demand for photograph development and printing, for example.

Competition

Apart from the increasing trend towards out-of-town major outlets, maybe someone will just decide to open up in competition just down the road.

Fashion

Some things just simply fade.

Customer loyalty

Sometimes customer loyalty is lost when a business changes hands.

Internal risks

Internal risks are essentially within your control, provided you have the aptitude and attention to detail to exercise it. Such risks could include:

Stock

Do you have the intuition to stock the right items, the hot sellers, or might you end up with shelves of unwanted items?

Financial control

Sometimes staff can think up the most ingenious ways of slipping cash out of the till or stock into their handbags. You need to consider which are the risks involved in the type of business you are considering, and which of these risks, given your circumstances, you are prepared to take.

Remember - if you are to be a businessperson you have to be prepared to take some risk. Why not? It could be that you are actually taking more risk by being an employee. Hundreds of people are losing jobs through no fault of their own every day of the week!

How much will the business cost?

To take the extreme, if you have a maximum of $10,000 in ready funds to invest, it is hardly worth looking at nursing homes or hotels, for example. On the other hand, a leasehold flower shop may be a realistic possibility.

Trade publications

Most businesses have trade publications. Find out which are the best ones for the types of businesses you are thinking about buying. Read a few issues. They are generally a good source of information, not only for commentary on the major concerns currently affecting that business sector, but will also contain advertisements for specialists in stocktaking, financing and so on.

Talk to business owners

It is a good idea to talk to business owners in the sectors you are targeting for their thoughts. Do not be shy about this; most business people are only too happy to talk about their business to prospective owners, as long as you make it clear that you are not about to open up nearby and put them out of business, of course! However, most business transfer agents (agents who act for owners wishing to sell their business, accountants, bank managers or solicitors can give you contacts if you prefer.

Having read this article, sit down and consider all the issues. This should give you the ideas and questions to put to them, and, as the conversation develops, the least you will gain will be confirmation that your expectations are correct. But, more likely, you will learn a lot of new aspects to running that type of business that you would have never thought about on your own.

Ask them what key factors there are to making the business successful or not. All businesses, without exception, have a few key factors that you have to get right for the business to, do well. For example, some of the key factors in the success of Pizza Hut are:

• Consistent product quality and price.
• Speed of service.
• Easy parking.
• Clean environment.

This sounds obvious, but a considerable degree of skill goes into ensuring that your pizza and chips are exactly the same whichever restaurant you go to. However, it is the knowledge that you can be assured of this that encourages you to go to Pizza Hut time and again, so it is vital for them to get this right. Other examples are:

• Pubs: (Keeping the beer in good condition; Keeping sticky fingers out of the till.)
• Convenience stores: ( Keeping the food fresh and presentation good.)
• Flower shops: (Avoiding undue wastage.)

The key factors in your particular business could concern presentation to the public or more internal factors, like financial control or avoiding undue stock losses, for example. By speaking with existing owners you should gain a good feel for what these critical factors are, and be able to assess whether you have the ability or willingness to make sure that you get them right.

Consultancies

Businesses such as insurance brokers, advertising agencies, graphic designers, IT consultants are often built up through personal relationships that go back over a long time. The same applies to hairdressers. As such there is often a real risk that once the current business owner leaves, a significant number of clients will decide it might be a good time to look around at alternatives.

In many such businesses there is a similar risk in relation to key employees. Instances where employees leave, either to start on their own or to join a competitor, and take clients with them, are commonplace. Practices such as graphic designers or advertising agencies, for example, where the employee works very closely with the clients and has an in-depth knowledge of their likes and dislikes, are particularly vulnerable in this respect. Often if you lose the employee you lose the client, even if the employee doesn't take the client with him, because it was solely for the skill or imagination of that employee that the client used this firm.

If you are thinking of buying a business of this nature, you will need to consider these risks very carefully and, if necessary, consider ways in which you can reduce them. You may need to contract the vendor to stay on in an advisory capacity for a period after take-over, and/or incentives key employees. You could also consider negotiating to defer part of the purchase price, making it only payable if sales meet projected targets over, say, the first two years after takeover.

It is never possible to eliminate the risks entirely and for that reason these types of business rarely sell for high prices unless they are large practices where the risks are widely spread over a large client base and workforce.

Unless you are experienced, you should obtain specialist advice about valuing such businesses and negotiating contractual terms. The relevant professional institute should be able to offer help in this respect.

Tags: become entrepreneur, broker business business, broker business buy, business buy case study, business catalog, business for sale, business forsale, business franchise to buy, business marketplace, business on sale, business's for sale, business-for-sale, businesses-for-sale, bussines, buy a business, buy a business by owner, buy a business web site, buying, selling, types of business

Author: Site4business.com

The rewards from successfully running your own business, generally speaking, are far greater than you will enjoy as an employee. I suppose that the fact that you are your own boss, and all the profits are yours, would be the most quoted reasons for wanting a business. As the boss, you will on occasions get the flack, but generally you tend to be much closer to the customers than you will have been as an employee, and treated on a more respected basis by people from all walks of life.

So, yes, running your own business can be very rewarding, but what attributes must you have to be successful as a business owner?

Willingness to work hard

Many people say, 'Work smart not hard.' We have all heard of people who have found 'nice little earners' which bring in the money for little effort. Most multi-level marketing schemes are sold to you on the basis that once your down-line network is established, the commission will simply accrue without any effort on your part. Have you ever met any successful multi-marketing people who do not work hard? There are plenty of people who have developed their business to a point where they can take long holidays and work whatever hours they wish, but they have always had to work hard over a considerable period of time to get the business to that point.

The simple fact is: ninety-nine people out of a hundred who run their own business work hard and always will.

Ability to take pressure

As the boss, the buck always stops with you, and whatever problems arise will ultimately need to be solved by you.

Capability to be decisive

All decisions will need to be taken by you and, if your business is to be successful, you cannot be one of life's procrastinators. If you do not stock the new line being offered by the sales representative, it will be offered to your competitors, so you must be able to take a quick and decisive view on whether or not it is a winner.

Have a flexible attitude

The world is constantly changing. The business that is locked in the past will die. You must go with the flow to succeed. I remember going to a bank cocktail party where the new Business Banking Centre was being opened by the owner of a large and successful department store in the town. In his speech he proudly joked how he had declined to accept debit cards, which at the time were the latest payment system just introduced by the banks. He obviously didn't see the need to suffer the bank charges involved, when he knew his customers would buy from him anyway. What do you bet you could pay by debit card there now!

Be willing to learn

There are several aspects to this. Most people coming out of an employed position, to run their own business for the first time, will have skills in certain areas, but running a small business entails dealing with every aspect of the business. Even if you have staff or contractors to do various tasks, these people quickly recognise a boss who is completely ignorant of the issue at hand and often take advantage.

Every type of business has basic elements that you must get right if the business is to do well. It could be location or maybe stock control. Possibly it is efficient factory layout or reliable delivery systems. Unless you have recently worked in the type of business you are buying, you will need quickly to identify and understand these key issues. As stated already, you need to be flexible towards change, and obviously this can involve learning new skills.

Ability to deal with people

This attribute is as important as any. When you work in a large organisation you often tend to deal mostly with people at a fairly similar level and in similar fields to yourself. When you run your own small business, you will have to deal with a variety of people at a variety of levels.

The successful businessperson is able to motivate people, whatever their relationship to the business, whether it be:

• Senior employee.
• Junior employee.
• Important owner/employee of a client.
• Lesser employee of a client.
• Bank manager, rax or VAT inspector.
• Sales rep.

If it is, say, a convenience store you are buying, then all your customers, being local, may well be of a generally similar background and as such you may feel that handling people is not a major concern. Nevertheless, you will still need to be able to communicate with them in a way that makes them feel valued.

If you have the type of business where you need to make sales calls, then you must have the communication skills necessary to present yourself to potential buyers in a way that gives them confidence, both in yourself, as well as your business, to provide the standard of service they require. Do not underestimate this. People buy people first. If you need help to hone your communication skills, then get it.

Equally important is the ability to motivate staff. If they like you and respect you, they will want to pull for you, and you will find that this will make all the difference when you are in a tight corner, or trying to impress a new client to win a first big order.

Franchises

A franchise is where you pay a fee to an established company for an exclusive territory, training, ongoing management backup and support to trade as part of a proven business.

For those dubious about buying a business of their own for the first time, a franchise can be the ideal answer. You are given training in all aspects of the business, help is always available whenever needed from a head office, and you are part of an established and proven operation. As such, you are in business working for yourself, but not by yourself, and success is assured provided you work to the system and put in the effort.

Well, that is the theory, and it can be correct. A franchise can be the ideal solution for people who are unsure that they have the knowledge to jump straight into business on their own.

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Author: Site4business.com

There are three types of legal entity that can be used for running your business:

• Sole trader.
• Partnership.
• Limited company.

In the following paragraphs you will find a brief description of the three alternatives.

For the sake of completeness, mention should be made at this point of two specialised legal entities - companies limited by guarantee and limited partnerships.

The references to 'debts' in the following paragraphs do not just mean loans, but cover all business liabilities - loans, overdrafts, trade credit, tax, VAT, etc.

Sole trader

As the name implies, this business format can only be used if you are trading as a single owner in your own name. In legal terms, the business does not exist as a separate entity - you and the business are one and the same. In financial terms, you are fully responsible for all business debts as it is you personally who has incurred the liability.

The bank account will be called something like John Smith trading as Pilem High Gadgets.

To comply with law, all important business documents, such as headed notepaper and invoices, must give details of the business owner if a trading name is used. In the above example it would not be sufficient to simply state 'Pilem High Gadgets' and the address. It would have to be made clear, usually as a footer, that it is John Smith trading under that name.

If you are leaving paid employment to go into business there are often tax advantages in the early years to being a sole trader, particularly if you expect not to make an immediate profit (you may be able to claim back some of the tax that had been deducted by your former employer from your pay). However check with your accountant, and read about limited companies below before making your final decision, as tax is not the only consideration.

Partnership

A partnership is a legally defined term. Partnerships are governed by the various Partnership Acts and by some aspects of the Companies Acts. These Acts do not affect you on a day-to-day basis, so they are nothing to worry about, but they will affect how your solicitor writes the partnership agreement, and how your accountant prepares the annual accounts.

If there are two or more of you, you need to decide whether to be a partnership or a limited company.

All partners are fully liable for the debts of the partnership, in the same way as a sole trader. In normal circumstances, you cannot get out of liability by claiming that the other partner was not authorised to incur the debt.

As with a sole trader, all important documents such as invoices must give details of ownership if a trading name is used - i.e. any name that does not include all the partners' full names. Some partnerships, such as large firms of solicitors for example, have many partners, and putting all the names on the stationery would be impractical. Therefore, the law states that either all the partners' names must be shown or a statement as to where their details can be seen must be included.

If you could trade as a sole trader, the alternative of forming a partnership with your spouse/partner might be suggested by your accountant, as he may feel it would be advantageous to split the income for tax purposes. The problem with this is that, as a partner, the spouse/partner then becomes liable for the business debts. A better solution might be to take the spouse/partner on as an employee and pay a salary. That would certainly provide better protection for the family home (unless it has been offered to a lender as security, of course).

You will need to have a partnership agreement drawn up.

Limited company

A limited company is a separate legal entity in its own right. The term 'limited' in this context means that the shareholders' liability is limited to the share capital they invested. In other words, if you bought some shares in Wall Mart and they went bust (some chance!), you lose your investment, but you cannot be asked to contribute any more to pay off Wall Mart's creditors.

A limited company is owned by its shareholders and run by its directors. There must be at least two shareholders, but there can be a single director. The company is registered at the appropriate Companies House, has a registered number, and has an official address which is called the 'Registered Office'. All formal documents served on the company must be served at the- Registered Office to be validly served.

All important documents must state the company name in full, where (country) the company is registered, the registered number and the address of the Registered Office.

Forming a limited company is the only way that you can limit in any way your personal liability for business debts. It sounds ideal, but there are other considerations, both pluses and minuses:

• A new company has no track record on which to base credit decisions. Therefore financial institutions will almost invariably insist on personal guarantees from the shareholders. Creditors, such as trade creditors, who are not able to take guarantees may not initially be prepared to sell on credit.

• A limited company is not a licence to act irresponsibly. Directors can be made personally liable if they do not run the company's business in a financially responsible manner.

• Anyone who has a strong influence over the way the company is run will be regarded as a director, even if he is not

formally appointed as one (this is called being a 'shadow director'), and as such he could become personally liable for company debts in the event of financial irresponsibility in the company's affairs.

• The above provisions are clearly designed to stop reckless people hiding behind a limited company. That said, we have all seen examples on the television where people get away with it, and it does happen all the time with small businesses.

• The limited company gives your accountant more options on how you are paid - by salary or by dividend - which may help your tax and National Insurance situation. There are also more options for pension arrangements.

• The other important consideration is when stock is to be used as security for a bank debt. In order to have effective security over stock, a bank needs to take what is called a 'floating charge'.

A legal 'charge' is a term to describe taking security over something. For example, if you have taken a mortgage to buy your house, the mortgage is a legal charge over the house. In the case of your house, it is called a fixed charge because the house doesn't change. You are not allowed to sell it without accounting to the mortgage lender.

If a charge is taken over stock in a business, the individual stock items come and go on a daily basis and, unless you are given permission to buy and sell in the ordinary course of trading, you clearly could not run the business. The bank takes a 'floating' charge whereby it is secured by whatever items of stock are there at any given time, and you are allowed to buy and sell as long as it is in the normal course of trading.

A limited company is the only business entity that can give such security so, if you are acquiring a business where the value of stock is substantial and will need to be used to secure finance, a limited company could be your only option.

A limited company is easily formed. Your accountant/solicitor can arrange it for you, or you can go directly to one of the specialist company formation agents (why not do the latter - it is simple and may save you money on accountants'/solicitors' charges?). Formation agents are usually based in offices near the registry ( Cardiff , for example, for companies to be formed in England and Wales ) or in other major cities. They advertise in Yellow Pages, as well as the business-to-business sections of national and regional newspapers. Fees are fairly standard, and it should not cost you much more than £100 or so to form a company.

Forming a limited company can be a good way to go into business with a partner, since the limited liability aspect might protect you and your personal assets if your partner does something financially rash. Although it is not a partnership as such, if you are forming a limited company with a business partner it is a good idea to draw up an agreement similar to a partnership agreement. In this case you would call it a shareholders' agreement, but you would cover the same general headings as described already for a partnership agreement.

What if the business is already trading as a limited company?

If the vendor is already trading as a limited company he may suggest you take the company over. This is very easy to do because all you need to do is execute a deed of transfer in respect of the shares. Since the business is owned by the company, and you now own the company, you now own the business. However, this is not generally a good idea because, however careful your investigation, you can never be certain that some unexpected creditors 'might not turn up with financial claims on the company at a later date. It is far better to start with a brand-new company with no history.

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In essence there are three main sources of money to fund a business venture:

• Equity (or capital).
  
• Debt.
  
• Grants.

Equity

Equity is the term used by financiers to describe the capital invested in the business by the business owners from their own resources. The advantage to the business of equity is that there is no interest charge, and a return is only paid to the investors if the business is generating money (no duck - no dinner!). For the single person or couple buying a small business on their own, there are really only two sources of equity:

• Funds from personal wealth.
  
• Profits generated by the business after takeover (which are obviously not available to fund the initial purchase of the business, but can contribute to financing expansion further down the road).

As we shall see when we discuss debt, because equity is free to the business, providers of debt finance like to see a reasonable amount of financial commitment from the business owners. If you are short of funds, it may be necessary to seek additional investors to provide equity to top up yours, possibly by bringing in a business partner.

Debt

There are various types of debt, some general in nature, and some tailored to a particular purpose. It is important for the ongoing health of the business to ensure that it is funded appropriately. Providers of debt finance like to see a reasonable financial investment contributed by the owners of the business. This is because:

• They do not like to take all the risk - if the owner has no money at stake he could walk with impunity at the first sign of trouble.
  
• Equity money is free - as already stated, equity investors get nothing unless the business generates money.
  
• In the case of insolvency the debt is paid back before equity.

Lenders describe the relationship between debt and equity as the 'debt to equity ratio' or 'gearing'.

If you buy a business for $100,000, borrowing $75,000 and paying $25,000 from your own savings, the debt to equity ratio (or gearing) is 3:1.

Different lenders look to different maximums for the debt to equity ratio, often setting separate criteria for each type of transaction. In calculating the ratio they include all sources of debt, not just their own. The other main consideration for lenders is the available profit to service the debt, often referred to as 'interest coverage' or 'debt service ratio'. If they consider that the forecast profit is too low in relation to the anticipated level of interest and repayments, they will not lend. There are many different types of debt, and only some will probably be relevant to your case.

There are following types of debt finance:

General

- Term loans.
- Overdrafts.
- Business cards.
- Government Loan Guarantee Scheme.
- Trade creditors.

Asset linked

- Invoice finance {for businesses that sell on credit).
- Vehicle finance.
- Commercial mortgages (for business property).
- Plant and equipment finance.
- Leasing (for vehicles or equipment)

Grants

Grants are generally only made available for encouraging investment in new business projects in areas of the country where unemployment is a major problem, or in particular industries that it is in the public interest to encourage - solar energy, for example. If you are buying an existing business it is highly unlikely that you will be eligible for grants, and it is beyond the remit of this book to provide information on the myriad schemes that are available. However, if you think what you are doing could be eligible for such assistance you should contact your local Business Link who will guide you in the right direction.

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