Should You Buy an Existing Business for Sale?
Buying an existing business has a better chance of success than starting a new one. You avoid the hassles of building a reputation and customer base or market. It is quicker and easier. However, you need to find the right business for you.
Advantages of Buying an Existing Business
1. The necessary permits and licenses to operate the business are already filed with the proper agencies. You will also be the owner of valuable proprietary rights – patents, trade names, brand names, copyrights and the like.
2. It is easier to obtain a loan from the bank or from investors – both are more comfortable lending money to a business with a proven track record.
3. The business already has an existing product or service for sale, while a start-up business still has to develop a product or service and market it with no assurance of success.
4. The customer base is already established. You only have to maintain the existing customers and you can try to increase sales by exercising the same standards that brought the company to where it is now. It will take a new business many years to build a customer base.
5. An existing business already generates cash flow and profits.
6. The business has built a reputation in the industry and market. Just advertise that the business is under new management. A starting business, though, has to spend a lot of money on advertising to introduce the company, what it offers and where it is located. It also has no track record or reputation.
7. There is an existing network of vendors or suppliers. Business systems for marketing, inventory, operations, maintenance, sales, etc. are already in place. These may need only some minor modifications.
8. Knowledgeable employees already familiar with running the business are in place whereas a new business needs some time to find employees and train them.
9. The risk of failure is far less as you can learn from real historical performance to help you make decisions. Problems or kinks on most aspects of the business have already ironed out.
How to Buy an Existing Business
1. Decide on the business that you want to buy. The right business should fit your personality, training, skills and passion. Consider, too, the size of the business you want in terms of staff, number of locations and sales. Try to choose a business you know a lot about.
2. Search for that match your criteria. Ask friends, entrepreneurs and . Read classified ad sections of local newspapers and trade publications. Search the Internet and attend trade fairs or industry association meetings.
3. Do your preliminary analysis on prospect businesses. Check publications and the Internet for articles on the industry. Be on the lookout for bad press and market reviews. Will the industry stay profitable?
4. Target the business you want. What is its reputation in the industry; with its customers, suppliers and creditors? What do they say about its customer service? Are its products or services reasonably priced? Visit the business and observe its daily operations.
5. Find out the reason why the owner is selling the business. Is there anything wrong with the business? Why is it not successful? Is the location not conducive to the business? Is it mismanaged or not properly marketed? Are there too many competitors? Is the owner sick or just wants to retire?
6. Perform due diligence. Together with a team of consultants – a lawyer, accountant, business appraiser or broker – investigate the history, operations, assets, financial status, the competition, market and growth potential of the business.
7. Make a purchase offer. Appraise the business according to its tangible and intangible assets. Compare the market price with similar businesses in the area. Evaluate its financial records.
8. Negotiate a deal. Ask for the owner to work with you for a short period to teach you the ropes.
When you consider buying an existing business, avoid assumptions and ask questions. Check all necessary documents regarding the business. Remember that you are buying an established business because you want to avoid risks. So, do not take any chances.
Are you now convinced that buying an established business is the way to go?