In a tough economy, buying a business can be a short-cut out of unemployment. When jobs are scarce and sources of new business are hard to find, buying a business that someone else has established can be a good approach. However it is also an expensive business – people do not give away their hard work and bargains are rare. If someone has the commercial ability to get a good business undereway they are not likely to be silly enough to undervalue it. Any one considering this step should also do a lot of research to make sure that they are getting what they expect. When you buy a house you hire a slew of professionals to check that everything is in order. The money involved in buying a business can be at similar levels and so you should be as cautious. The formal name for this type of work is called due dilligence. Due dilligence work should be carried out on at least three aspects of the sale.

– the commercial strength of the business
– the financial strenght of the business, and
– the legal agreement that is being proposed

Here are some suggestions that we found , from Rudy LeCorps which gives a good general series of steps that you should take when evaluating a business for purchase.

» Introduction
It is possible for anyone to create current and future passive income by buying existing businesses from owners who are changing career or retiring.

» Step 1
Decide What Type of Business You Want to Buy. Examine your professional experience to see what kind of business would make the best use use of your existing skills. Buying a business in which you have no experience is not recommended, unless you can hire an experienced manager to run it for you. An easy way to do that is to review a list of industries to determine which one fits your skills or gets you excited. Running a business is a lot of work and the more you know about that business and the more passionate you are about what you will be doing, the better off you will be.

» Step 2
Your Next Step is to Find a Business to Buy in Your Industry of Choice. Finding the right business to buy will take time and patience. But in a nutshell, you can find businesses for sale ads by a) browsing the opportunity section of the newspapers, b) working with a business broker, c) by browsing the Internet, and d) by approaching business owners directly.

» Step 3
You Next Step is to Conduct Due Diligence. Due diligence should be conducted carefully. By following a systematic due diligence approach, you will be able to intelligently conclude whether the business represents a good investment opportunity. Otherwise you could spend money buying a business and loose all your investment. A complete due diligence system is discussed in my free eBook which can be downloaded at http://whiteoakpartnersinc.com.

» Step 4
Next, Determine the Price to Pay for the Business. Business valuation is your next task. To value the business, you can apply one of several strategies, including a) a multiple of net income, b) a multiple of sales, c) a comparable-based valuation and d) a discounted cashflow strategy. A complete valuation strategy is presented in my free ebook which you can download at http://whiteoakpartnersinc.com.

» Step 5
Your Final Step is the secure financing for your purchase and make an offer. Financing can be in the form of personal savings, bank loans, or capital from investors.

p>Rudy LeCorps is Managing Director of Whiteoak Partners, a small business advisory and investment firm in Jersey City (http://whiteoakpartnersinc.com). Rudy LeCorps is also co-founder of Spiffy Car Rentals, Inc. and has been President of the company for the past 10 years. Spiffy Car Rentals is an operator of car rental locations in Northern New Jersey . Rudy LeCorps also worked for Morgan Stanley and JPMorgan Chase where he was Vice President of Investments from April 2008 to October 7th, 2010.

At the end of the day, buying a business is a commercial decision. If the deal is to succeed, you will need to be able to make a profit and to service the financing that you will undertake to make the purchase. Events recently have shown that what seems like sensible borrowing now can look like a poor decision in a higher interest rate environment or when sentiment moves away from high financial leverage.

Aside from these considerations, you need to make sure that what you are being sold is what you will end up running and that is where due dilligence plays a role in buying a business.