How to Buy a Good Business at a Great Price

One way to own a profitable business is to buy an existing successful business. Existing businesses can come ready-made with brand recognition, plans and systems, inventory, and a history of success. But there are potential pitfalls as well, including the initial cost and hidden problems. Here are some tips about the right questions to ask for buying a good business at a good price.

Instructions

1. Ask who the seller is and why he is selling. Some people sell a business to retire or to change careers. Sometimes they sell because they're about to go bankrupt. Find out all you can about the seller including information regarding his reputation and whether he started the business or bought it from someone else,

2. Determine what's included in the sale. Not all business sales include everything that's currently used in the business. Avoid having the current owner retain rights to important assets such as the brand name or client database. So find out what your money will buy including:
   1) Inventory
   2) Fixtures and materials
   3) The brand and intellectual property (use of logos, trademarks, patents etc.)
   4) Customer database

3. Investigate the financial state of the business. This is crucial to making sure you're not buying a business that's about to go belly up. Find out the current financial state of the business by getting information about:
   1) Assets
   2) Debts
   3) Accounts receivable
   4) Income and loss statements for the last five years

4. Find out what obligations come with the business. Sometimes when buying a business, you're also buying its obligations. Find out about:
   1) Financial obligations (loans, liens)
   2) Vendor or contractor agreements
   3) Franchise agreements
   4) Legal permits and licenses
   5) Hidden or silent partners

5. Ascertain any support during and after the sale. While stepping into a successfully running business makes it easier to step into a profit, it's your job to know how to keep it running as smoothly as before you bought it. But that's easier said than done. So find out what support and assistance the seller can provide you and any new staff to learn the ropes during the transition of ownership.

6. Learn to negotiate. Once you've determined that the business is solid, you can work with the seller to negotiate a fair transaction. Some things to consider are whether or not he'll accept a lower price if you pay with cash or offer some other quick sale scenario. If you can't afford the asking price, will he extend financing to you?

Tips & Warnings

• Do not assume your future plans for the business can overcome zoning regulations, environmental restrictions and other existing laws in your locality.

• Always consult an attorney before entering into an agreement to purchase a business.

References

• Small Business Adminstration - Buying a Business