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How To Investigate Any Business Opportunity
3. Are all local zoning requirements being met?
4. Review the articles of incorporation, minute books, bylaws, and/or partnership agreements.
5. What are the classes of stock and the restrictions of each, if any?
6. Has any stock been canceled or repurchased?
7. Is the business a franchise? If so, review the franchise agreement.
Competitors
1. Who are the business's competitors?
2. What is their market share?
3. What are each competitor's competitive advantages and disadvantages?
All the factors identified in this section on evaluating a business have to be carefully scrutinized and
weighed. Some factors will have a positive influence on the decision to buy. Others will have a negative
influence. Seek out professional assistance if help is needed in interpreting the significance of the infor-
mation. The important thing is to obtain all the information needed to make a decision. In most in-
stances, all of the business records should be made available to the buyer. In some cases however, cer-
tain information may be withheld until a bona fide offer, contingent upon obtaining that information, has
been made. If important information is unreasonably withheld, the likelihood of making the transaction
work diminishes.
5. Financing The Purchase
A buyer's source of financing depends in part on the size of the business being purchased. The vast ma-
jority of businesses (and particularly the smaller businesses) are purchased with a significant portion of
the purchase price financed by the owner. The buyer, however, still must make a down payment and be
sure that adequate working capital sources are available.
If the funds needed for the down payment are not readily available, the buyer must look for financing
from an outside source. To grant such financing, an institutional lender is almost certain to require per-
sonal collateral for the loan as well as a compendium of financial and operating data of the business to
be acquired. It is rare indeed to be granted a loan to purchase a smaller, privately-held business when
the loan is secured only by the assets of the business. The most attractive types of personal collateral
from the lender's point of view are real estate, marketable securities and cash value of life insurance. In
addition to personal collateral, it must also be demonstrated to the lender that the buyer is of good char-
acter, has a clear source of repayment, and has a good business plan. The most common sources for
such loans are financial institutions such as banks.