When buying a business from a independent broker there are some pitfalls that you should look out for. For example, make sure there isn’t any impending disagreement of interest whenever you approach a business broker seeking for a list of companies, which are for sale. The broker will try to push you away from the companies if they are not listed by anybody. They broker for his personal financial interest and will always try to convince you to go for the company, which the broker himself has listed for sale. The most common problem faced by the buyer is that they don’t know whom to approach. There are plenty of mergers and acquisitions going on, but the exclusive attention is given on either on the buyer or seller. You need to go to a company, which exclusively deals with the buyer, as you are a buyer in this case.
Choosing a brokerage firm is not easy. Tell them beforehand your reasons for buying the new business and also how much you are willing to pay and what are you expecting. Most people say that they want to buy a business. Starting a business from scratch is more risky. If the buyer is already in the business, his complexities only increase. You might want to increase your sales growth by purchasing a new company or maybe you are targeting to a particular manufacturing process. Whatever the reason may be, it should be clarified. If this is not a personal purchase, then the risk involve is not necessarily huge. A company is more flexible in suffering the financial losses than an individual.
As you have pinpointed your focus on a particular business, ask the broker to furnish the company’s financial statements for the last three years. It is necessary recast the numbers to reflect cost economics if an already existing company is entering into the acquisition. I was a part of an acquisition team for a giant multinational during the earlier days of my career. The acquisition target was just reflected as a division after the financial statement was refurnished. We had no other alternatives but to remove majority of our staff at the execution level and even to reduce the salary of the managers and other employees. We were compelled reduce the expenses in many other areas. Few things should be taken into consideration while recasting financial statements. The value should be determined on the basis of the fixed assets. The values of machinery and other depreciable items are not always reflected with lower amounts than actually what they stand for.