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Things to Consider Before Buying an Existing Business

Aastha Dogra
If you want to buy an existing business, you need to be sure that it is indeed a profitable venture. You should also be able to appraise it properly so that you do not end up paying more than the business is worth. Read on to know all the things to be considered when buying an established business...
Having one's own business offers a kind of flexibility that no regular nine to five job can offer. That's why, turning an entrepreneur and being your own boss is a dream of many people. There are numerous routes which a person can take to become an entrepreneur.
Starting one's own business, acquiring a franchise and buying an existing business, are some of the popular ways amongst them. The following story discusses in detail how to buy an existing business as well as the things to consider before buying one.

Things to Consider when Buying an Existing Business

Step 1

Before buying an existing business, you should be sure that you are ready to take on the responsibility which comes with becoming a business owner. Although, unlike in a job, you would not need to report to anyone, yet, all the losses/profits of the business will be yours from now on. So, only if you are prepared for this, you should consider purchasing one.

Step 2

If you are ready for this responsibility, next, decide upon the business that you would like to own. For this, look into the kind of education, skills and experience that you have.
Examine your personality and then accordingly, buy a business in which you think you will be able to give your best. Be aware of your capabilities, ask yourself whether you will be able to handle the clients and employees of the business that you are going to purchase. If you think you can, go for it!

Step 3

Look out for the businesses that you can buy. Search through newspaper advertisements, go to a business broker, ask your acquaintances, friends, attorney, banker, etc., to help you out in your search. You can even go to trade associations and look for businesses that have put themselves up for sale.

Step 4

Once you have zeroed in on a business, the next thing to do is to investigate whether buying it would be profitable for you. So, analyze the business thoroughly. Look at its financial statements for the last three years. See whether its making profits or is it on a decline.
If its declining, ask yourself whether you would be able to turn around its fortunes or the business has reached its peak and is no longer profitable.
Check the inventory, staff, equipment, suppliers, current assets and liabilities, etc., and gain as much information as you can about the business. Personally have a chat with the owner and ask him the reasons why he wants to sell the business.
Preferably, talk to the employees, customers and competitors of the business as well and have their opinion on the business.
Only if you feel satisfied with their replies and find the business to be a profitable investment for the future, that you should consider purchasing it. Lastly, ask the owner of the business if you can spend a couple of days at the actual site. This will give you a much clearer idea on how the business operates and functions.

Tips on How to Buy an Existing Business

Considering that you have decided on a particular business to buy, the next thing that you would need to do is to develop a purchase strategy.
Here, you have two options, either you buy only the assets of the business and let the previous owner take care of the rest. Or, you can buy the balance sheet, wherein, whatever profits, losses, assets and liabilities of the business are there, they will be your responsibility from now on. Choose a strategy that suits you.
Hire an appraiser to set the correct price for the business, who would analyze the business properly and accordingly come up with its value.
Negotiate the deal and ensure that the seller agrees to the price that you have in mind. Decide on the terms of payment as well. Once these things are agreed upon by you and the seller, you will need to create a sales agreement. Hire the services of a good lawyer to create one and finally, sign the deal.
Buying an existing business has its own share of pros and cons. It does not need to be started from a scratch as it already has clients and is in the running. On the flip side, one needs a huge amount of money to invest in an established business.
Moreover, like any other business, there is always a risk that the profits dry up and it starts making losses! That's why, it is advised to always take technical and legal advice, before putting one's hard-earned money in a business.