Buying an Existing Business

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Buying an Existing Business

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Buying an Existing Business Edited by: Noémi Piricz Read: Thomas W. Zimmerer – Norman M. Scarborough: Essentials of Entrepreneurship and Small Business Management, Pearson Education International 2005, Chapter 5

For some people, buying an existing business is a better option than starting from scratch. But if someone wants to buy a business, he/she'll need to do some thorough research to make sure that what he/she sees is what he/she is going to get. What Type of Business Should One Buy?

Finding a Business to Buy It depends on the types of work he has done and on the he classes he has taken, or perhaps on his special skills He should buy a business in an industry that he knows He should try to choose a field that he loves

Finding a Business to Buy After he has decided what type of business he wants to buy, he is ready to begin his hunt for the perfect company. He should ask business associates and friends, trade associations, real estate brokers, and business suppliers. Or let him read newspaper ads. Finally, there are business brokers - people who earn a commission from business owners who need help finding buyers

Research the Business's History and Finances Before he seriously considers buying a particular business, he should find out as much as he can about it:

Let him review copies of the business's certified financial records, including cash flow statements, balance sheets, accounts payable and receivable, employee files, including benefits and any employee contracts, and major contracts and leases, as well as any past lawsuits and other relevant information.

He shouldn't be shy about asking for information about the business. He should also review any business records that will provide him with information to help him decide whether the business is a smart purchase. If the seller refuses to supply any of this information, or if he finds any misinformation, this may be a sign that he should look elsewhere for the right business to buy.

Closing the Deal He (potential buyer) and the owner will have to agree on a fair purchase price. A good way to do this is to hire an experienced appraiser who can estimate the company's fair market value. He and the business owner will agree on which assets you will buy and the terms of payment He'll need to create a written sales agreement and possibly have a lawyer review it before he signs.

Key Definitions business brokers appraiser