# What to Check When You Look at a Business for Sale - A Plain-Language Guide for First-Time Buyers
A clearly-defined plan to evaluate a business before you buy it is arguably the most important step in the buying process. As a Las Vegas broker since 2001, I meet many first-time buyers who have the desire and motivational drive but do not yet know how to interpret the numbers, spot risk, or decide what the business is worth. This guide walks you through each step in plain words so you know what to check before you buy the business.
## 1. Define Your Personal Buying Rules First
Before you search for any business listing, write down your own personal rules - this keeps you from wasting hours on deals that do not fit your available cash, business skills or life goals.
Rules to list:
* Industries desired (home services, retail, manufacturing, e-commerce, restaurants, trucking or others)
* Cash flow requirements (ie: Seller's Discretionary Earnings)
* Local areas desired (Las Vegas Valley, Henderson, North Las Vegas, Summerlin, Boulder City, etc.)
* How you want to run the business (hands-on, part-time or absentee)
* Skills you possess (very important!--be honest with yourself)
* Cash you have available for the down payment, working capital, and day-to-day needs
* Level of risk you are willing to tolerate
Define your personal criteria now to keep later reviews short and on target.
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## 2. Reading the Financial Statements Without Fear
First-time buyers often fear "the numbers". Financial statements show if the firm consistently earns money, is stable, and has the ability to hold value. Las Vegas businesses are often seasonal and vary with tourist seasons - look at three to five full years of operations.
Documents you will need to review:
* Profit and Loss Statements for the last three to five years
* Tax returns for the same years
* Balance sheets
* Cash flow statements
* Seller's Discretionary Earnings recast
* Point-of-sale or job cost reports if they exist
Ask these questions:
* Has revenue risen, stayed flat or dropped?
* Do costs match the norm for this industry?
* Can profit margins hold at current sales levels?
* Which add-backs did any recast financials include? Are they verifiable?
* Does the firm owe any debts or carry hidden liabilities?
* How much revenues might decrease leaves if the current owner walks away?
If you need help, hire a CPA to review the financial statements and detect any obvious anomalies and to help verify that the numbers are correct.
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## 3. Examine the "Quality of Revenues"
All revenue is not equal. To judge whether a business will stay stable after you buy it, look at the kind of revenue it earns.
Check these points:
* Customer concentration. If one customer pays more than 10 - 20 % of total sales, this implies risk. What happens if you lose a big customer?
* Recurring revenue streams or one time sales for each customer.
* Revenue that comes from signed service or maintenance contracts.
* Demand for the product or service in the current market.
* Customer base - tourists only, locals only, or both?
* How the company ranks against its competitors in Las Vegas.
Revenue that scores high on those points raises the value of the business and lowers the chance of failure after the sale.
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## 4. Evaluate Operational Efficiency
The way a business runs day-to-day is often ignored - yet it is critical. Paper profits means little if the inner workings are chaotic.
Look for:
* The current staff structure and who are the key employees.
* Which functions that only the owner knows how to do.
* Written standard operating procedures.
* Vendor relationships and the reliability of the supply chain.
* Technology - CRM, inventory, scheduling and related systems.
* Quality-control processes.
* Licenses required by Nevada or Clark County.
If the company stalls when the seller steps away, you may need extra staff and an ongoing consultation agreement with the current owner.
## 5. Consider the Current Location as well as Market Position
Las Vegas has its own geographic and demographic patterns. The business location can affect visibility, profit, customer volume and long-term worth.
Review:
* Foot traffic and business visibility.
* Parking availability.
* Distance to direct competitors.
* The income and age profile of nearby residents.
* Reliance on tourists or convention visitors.
* Growth trends in the surrounding area.
* Zoning rules also other local regulations.
A restaurant next to the Strip deals with different customers and risks than a café in a Summerlin or Green Valley neighborhood.
## 6. Review Inventory, Equipment, and Physical Assets
The state of the assets sets both the price you pay today and the cash you must spend tomorrow.
Check:
* Age and condition of each major machine.
* Service logs plus repair history.
* Expected years of service left.
* How fast inventory sells.
* Accuracy of inventory counts plus losses from theft or obsolescence.
* Fair market value of furniture, fixtures and equipment.
If you must replace key equipment soon, lower your offer to cover that cost.
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## 7. Verify Legal but also Regulatory Compliance
Nevada imposes its own unique licenses, permits and compliance rules. Overlook them and you face delay or liability after closing.
Evaluate:
* State business license
* Local city or county business license
* Licenses that apply only to certain trades - contractors, auto repair, liquor sales, health permits
* Proof that the business meets environmental rules
* OSHA or other safety records
* Any lawsuits that are not yet closed
* Customer complaints or regulatory actions
Verify that the business satisfies every requirement before you decide to buy.
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## 8. Review Online Presence and Digital Assets
In Las Vegas, tourists usually check the internet before they choose where to spend money - a businesses' digital footprint affects both its market position and its value.
Examine:
* Website design, SEO results and unpaid search rank
* How the Google Business Profile performs
* Customer reviews plus star ratings
* The way the firm guards its reputation
* Activity on social media
* Results from paid ads
* Who owns the domain name and who controls digital assets
Firms that show up easily online and hold high review scores tend to survive and grow faster.
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## 9. Review Workforce Stability and Skill
The staff usually keeps the firm alive - stability is vital while the business changes hands.
Check:
* How long employees stay
* Their skills and certificates
* What each role does
* How often people leave
* Whether pay matches Las Vegas market rates
* Morale and culture
* Which key staff must stay after the sale
* Any open HR problems
If the firm depends on specialists who are hard to replace, risk rises - cover this in the transition plan.
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## 10. Pinpoint the Firm's Competitive Advantages
Competitive Advantages - or “moats” - show whether the firm can stand up to rivals but also market shifts.
Search for:
* Suppliers who work only with this firm
* Products or processes no one else owns
* A location that customers cannot miss
* A brand that people trust
* Long-run customer ties
* High barriers to entry that block new competitors
* Service contracts that renew automatically
* Patents, intellectual property or trade secrets
A firm with a solid competitive advantage is worth more and faces less risk.
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## 11. Study the Market and the Industry
Examine "The Big Picture".
Look at:
* Growth trends for the industry in Nevada as well as across the country
* What drives customer demand
* How many competitors operate nearby
* Economic and tourism trends
* Rules or industry risks that could affect profits
* Typical profit margins for the industry
* Seasonal swings that affect Las Vegas
Compare the firm's results with industry averages to see if it exceeds or trails its peers.
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## 12. Learn Why the Seller is Exiting
The seller's motivation to sell may reveal hidden risks.
Typical motives:
* Retirement
* Move to another city
* Health issues
* Burnout (Why?)
* Wish to start a new venture
* Operational problems
* Falling sales or stronger rivals
Verify that the reason given matches what the numbers and daily operations show.
## 13. Review Valuation, Pricing and Deal Structure
Many small businesses are priced at a multiple of SDE (Seller's Discretionary Earnings). In Las Vegas the usual SDE typically multiple falls between 2 and 4X, varying with industry, financial performance and risk.
Items that affect valuation:
* Whether the financial records are strong and accurate
* Revenue and profit trends over time
* How many different customers the business serves
* Stability of the industry
* How much daily work the owner must perform
* The physical state of equipment and property
* Revenue that recurs on a predictable schedule
* How many competitors operate nearby
* How stable is the workforce?
Typical ways to structure the purchase
* Cash paid at closing
* A loan guaranteed by the SBA
* The seller carries a note
* Part of the price is paid later if the business hits set targets (milestone payments)
* Payments tied to future performance (earn-out)
* A written agreement for training and hand over
* A non-compete agreement to insure the seller will not open a rival firm
The terms of the deal often matter more than the price because it determines who carries each risk and how and when cash will flow to each party.
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## 14. Perform Thorough Due Diligence
Due diligence is the stage where you confirm that every claim the seller makes is true. It is the most critical step in judging any small business purchase in Nevada.
Subjects to check:
* Financial records
* Daily operations
* Legal permits and compliance
* Lease terms and landlord consent
* Key customers and suppliers
* Equipment condition
* Employee status
* Inventory levels
* Ownership of website and digital assets
* Tax filings and payments
During this period many buyers seek help from:
* A business broker
* A certified public accountant
* An attorney
* Specialists who know the industry
Risks will surface here and should be mitigated before the deal closes.
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## 15. Evaluate Post-Closing Transition Support
The transition period shapes the first ninety days of your ownership.
Check:
* How many weeks or months the seller is willing to train you
* Whether the seller will stay on site
* Whether phone or e-mail consultation continues after the on-site period
* When and how the seller introduces you to staff and customers
* How vendor accounts are moved to your name
* How software and system log-ins are handed over
* Whether written procedures and SOPs are provided
A solid transition agreement raises the odds that operations will run smoothly after closing.
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## Final Thoughts--
Judging a Las Vegas business that is for sale demands a step-by-step method. First-time buyers often feel swamped by financial statements, operational details licensing rules and valuation - yet the task can be straightforward with proper guidance.
An experienced Las Vegas business broker gives clear advantages
* A list of pre-screened businesses
* Benchmarks for the specific industry
* Skill in recasting financials and in valuation
* Help during price and term talks
* Aid in arranging SBA or seller financing
* Co-ordination of professional due diligence
* Oversight of closing and transition
Buying a business is a proven route into entrepreneurship and into creating long term wealth. With a disciplined review process and professional support you can identify a business that fits your financial targets, operational style, and lifestyle goals.
If you look for a business to buy in Las Vegas, a seasoned business broker lowers your risk and steers you toward one that matches the future you want.