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Buying An Established Business
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people feel that buying an established business is a reliable short-cut
to becoming a successful entrepreneur. The existing business offers
many advantages such as an established business method, clientele,
profit picture, perhaps premises and inventory and very often a
reputable name. However, one very important question must be answered;
why is the business for sale?
As with any short-cut, however, there is a
price to pay, and in this
case there are really two "prices". One is money, and the other is time
and effort.
If you buy a prosperous business, the money you give for goodwill (the
good reputation of the business) is paying for these advantages. This
may be money well spent. On the other hand, it may be money wasted if
the business is really failing or has unforeseen problems.
Before purchasing a business, insist on
reviewing financial statements
for as many previous years as possible (up to five years). Obtain
lists of clients or customers and suppliers. All leases and outstanding
contracts must be reviewed. The decision to buy should not be made
lightly, get professional advice (an accountant to review financial
information and a lawyer to review leases, business contracts, etc.,)
before purchase
agreement.
Each year many small businesses are bought
and sold. A lot of key issues must be considered before you complete
the final purchase.
Two of the most important issues are the
following:
 Why is the business for sale?
How much should you pay for the business?
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 ADVANTAGES |
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Limited risks.
Success of the business location has
been proven.
Cash flow begins immediately with
sales to established customers.
Employees may already be trained and
knowledgeable.
New owner inherits the goodwill and
reputation.
Inventory already exists and
suppliers are known.
Relationships with suppliers,
bankers, and so on, are established.
Business is equipped and furnished.
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| DISADVANTAGES |
Location, if not satisfactory, is
difficult to change.
Potential for decrease in sales
because owner's departure could result in loss of loyal customers.
Some employees who stayed with the
business may not be assets.
Inventory may be out of date,
overpriced, or not to the new owner's liking.
Business may require expensive
modernization.
Seller may have hidden reasons for
selling business.
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| RELATED INFO |
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Market
Research
Your
Product Or Service
Your
Customers
Your Competition
Getting A
Financial Picture
Business Guide
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| RECOMMENDED
LITERATURE |
|
A Basic Guide for Buying and Selling a
Company - This outstanding guide contains all the essentials
with regard to the interaction of people transacting for small
businesses and how to maximize your chances to obtain fair deals.
Explains how to effectively use a business broker, methods of payment
available to the buyer, deal with an attorney, how the seller prices
the company, and much more.
How to Buy and/or Sell a Small Business for
Maximum Profit: A Step-by-Step Guide - This book provides
a road map of suggestions, insights and techniques for both buyers and
sellers. It covers the entire selling process step-by-step—from making
the decision of when to sell or buy, through determining how to market
the company, to understanding the various legal & financial
documents involved in a sale, and on to closing the deal and handling
the transition afterwards. This book is geared toward the novice
entrepreneur who wants to buy or sell a small business. Topics covered
include: finding and evaluating a business to buy and/or sell, how to
value a business, raising the necessary capital, evaluating a business
financial condition using discounted cash flow, excess earnings, asset
value, and income capitalization, brokers, leveraged buyouts, letters
of intent, legal and tax concerns and contracts.
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