When buying a business, especially one on Maui, we have found the following to be very important:
1. Know yourself. In addition to defining your financial goals, define what kind of work you enjoy. Owning a business takes work, and can be very financially rewarding. The best way to be successful is to do something you (and your spouse) like doing.
2. Understand the basic financial and accounting concepts of business. This knowledge can be easily learned and will pay big dividends to you as you get involved in the day to day operations of your business and in dealing with the outside world of bankers, tax experts, etc.
3. Work with a qualified business broker, preferably one who is a member of the International Business Brokers Association, who can honestly and ethically answer your questions and guide you on your path to business ownership.
4. Understand the business you are trying to buy. Ask lots of questions about customers, operations, financials, supply, regulations, etc. Analyze the financial details for the last several years, including the tax returns, and prepare a detailed cash flow projection for the next 2 to 3 years, with monthly detail for the first 12 months.
5. Use advisors (legal, accounting, tax, etc.) for help in addressing any questions you may have as you begin to understand the business you are interested in.
6. If you will be using bank financing begin the approval process as soon as you sign a deal, because it will take far longer to complete than you will expect. The bank will want (at least) the following: several years of your tax returns, your resume and net worth statement, information regarding your outside sources of income, the business’s tax returns and past financial performance, your projection for the business’s future cash flow, and your own personal cash flow. They will ask for any information they need to help them be assured that after they lend you the money, you will pay them back.
7. In addition to a detailed cash flow projection for the new business, prepare a personal cash flow plan or budget. Make sure that you begin your business with enough cash in the bank to: finance the working capital you will need for the business; live on until the business is providing sufficient cash flow to pay yourself (especially if the business has seasonality); and have a “rainy day fund” for when unexpected issues pop up.
8. Prepare an operating plan (in addition to the financial plan) so you can track your performance and make adjustments as needed.
9. Before closing, ensure that all of the details that are needed to be finished are completed. These include: commercial insurance, established banking relationship, credit card service, government licensees ( federal tax number, General Excise tax number, employer numbers, etc.), health insurance for you and employees, supply relationships and credit lines, utility accounts (electric, phone, etc.), and the many other items that will need to be done so you can be successful. A good broker, such as VR Business Sales/Mergers & Acquisitions on Maui, can help with this.
10. Start owning your business with a positive mind set, expect the unexpected to arise, and deal with it effectively. Maui is a small community and many things are done through informal networking. Build your network be getting involved in your community. The people you will meet with enrich your life and will help your business.