Buying versus starting from scratch

Some of the advantages of buying a business are:

You’re in operation immediately and therefore have immediate income

You may face less risk of failure than if you start from scratch

You may be able to finance the business easier because of established credit

You purchase an existing client/customer base

You eliminate a potential competitor in your industry.

The disadvantages to consider are:

You may pay too much for the business if you haven’t done your research

You may inherit a poor image if customers or employees are dissatisfied

You may be unaware of new competition entering the market

You are left with any previous problems (financial or otherwise) incurred by the seller.

Once you are aware of the benefits and risks associated with buying a business, and have found a business that matches your strengths and interests, you must then do a thorough examination of the operation.

Investigate

The first step is to find out why the business is for sale. One of the primary reasons a business is selling is because it is failing in some way. By gathering as much information as possible about the business, you should be able to pinpoint its weaknesses. Question whether or not it has potential for future growth and what some of its prospective shortcomings might be.

Whether you want to acquire a service, retail, manufacturing or wholesale business, be sure to analyze the industry market as well. Determine the current industry trends and who its customers are.

Evaluate

The next thing you need to do is evaluate all aspects of the business such as:

Location

Management

Goodwill

Inventory

Customer/client base

Suppliers

Equipment

Employees

Legal contracts

Financial Statements/Records.

At this point you should consider seeking the advice of a solicitor to handle the legal documentation and an accountant to analyze the financial/tax records.

In some cases, such as when you’re buying a large business, you may also decide to consult a business broker whose expertise will focus on your interests and help to reduce the risk of overlooking important details.

Negotiate

When you have thoroughly investigated and assessed the value of the business, you can begin to negotiate a price with the seller. It is important to document all settlements to make sure that both you and the seller are clear on what is being negotiated. Again, a broker can simplify the bargaining process and do most of the paperwork for you.