Buying An Existing Business Part I of IX

So, you want to be the boss!

You decided you want to be in business for yourself! Now you want to know the best way to get started!

There are three main options for getting into a small business:
1. Starting A Business From Scratch.
2. Buying A Franchise, Dealership or Distributorship.
3. Buying An Existing Business.

This article focus' on option 3. Buying An Existing Business!

Welcome to Part I of "Buying An Existing Small Business"!

Let's face it buying an existing business is peppered with problems that can cause financial loss and sleepless nights.
You have many things to think about and often it may seem impossible to get the right business at the right price.
Caution should be exercised throughout this whole process, not only because it will help you to find the business that is right for you, but it will also help you to avoid being taken advantage of by unscrupulous sellers.

Being a professional business broker for more than 25 years, I can tell you that when done properly and with patience buying an existing small business is the way to go. If you follow the steps presented in this and future articles you will have a far greater chance of
finding the right business and at the right price.

Keep in mind this material deals ONLY with the buying of an "Existing Small Business".

Lets begin by examining some of the advantages and disadvantages.

ADVANTAGES

Immediate Benefit -- Someone else has already gotten the company started, and a successful system for running the business is in place.

Training -- The seller will more-than-likely provide you with his/her knowledge and experience.

Quick Cash Flow -- Existing inventory that can generate income from day one.

Existing Customer Base -- Customers and suppliers are already in place.

Existing Employees -- You will have trained employees who are familiar with the business.

Easier Financing -- Financing may be easier to obtain because the business has a track record and trading history. Bankers and investors generally feel more comfortable dealing with a business that has a proven track record. It should also be noted that more often than not seller's will carry a contract if they have a sizable down payment and a confidence in your ability to run a successful operation.

Less Risky -- In most cases, buying an existing business is far less risky than starting from scratch.

Location -- You can see what you are getting for your money. A lease on the premises has been negotiated and necessary equipment installed.

Goodwill-- Name and location are established.

DISADVANTAGES


Cost -- Buying a business may require more up-front cash than start-ups.

Obsolete Goods -- Inventories and/or equipment may be obsolete.

Customers May Leave -- There may be personality conflicts

Employees May Leave -- There may be personality conflicts.

Business May Be Overpriced -- A sound valuation includes the elements of
common sense, informed judgment and reasonableness.

Goodwill -- Goodwill comes at a price. It is the equity value of intangible assets, and should be based upon earning capacity.

Problems -- There may be inherent problems in the business, some of which may not be apparent until after the sale. Be sure to find out why the owner is selling. Folks, there will always be unknowns: new competitors and the economy may falter. Thorough assessment of the risks and opportunities will help you to make the right choice.

With an existing business there will almost always be surprises. You can reduce the potential for surprises by paying close attention to all the steps outlined in this article.

In following articles I plan to show you how to avoid these disadvantages. Remember, the steps involved in purchasing a business are similar to those you need to take whenever you make any major purchase. You need to locate some good businesses to buy, and then research your choice thoroughly before deciding to go forward with the transaction.

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