How to Buy an Existing Business

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Buy an Existing Business
Buy an Existing Business

How to Buy an Existing Business. Although it may not be the purest form of entrepreneurship, buying an existing business does have its merits. An existing business tends to be less risky than starting one from scratch because many of its systems are already in place.

Things You'll Need

  • Contracts
  • Calculators
  • Accountants
  • Attorney Referral Services
  • Business Broker
  • Business Licenses
  • Business Loans
  • Business loans

Decide what type of business to buy. Examine your personality, skills and experience. Find one that suits you and one in which you have some background. When you buy an existing business, you will have to step right in as owner/operator, so you will need to have a good background going in.

Search for a business to buy. Ask friends and associates if they know of any businesses for sale. Ask your accountant, attorney and banker to help you in your search. Go to trade associations and the classified newspaper ads for leads

Analyze your prospects. Thoroughly investigate the business before deciding to purchase it. Find out its history - when it was founded and by whom. Look at its financials from the past five years. See whether it is profitable and whether profits are increasing or decreasing. Examine the business's operating expenses and compare them to those of similar businesses. Also, scrutinize the inventory, competition, supply sources, current personnel and reasons why the owner is selling.

Ask the owner for a look-see. Spend time at the business to get a good idea about its daily operations.

Decide on a purchase strategy. You can either purchase the balance sheet, which includes both assets and liabilities, or you can buy just the assets. It's a better deal to buy only the assets and allow the current owner to take care of any liabilities.

Set a price. There are several ways to value a business. The best method to estimate a purchase price is to look at the business's market value. An accountant should be able to determine this figure.

Negotiate a deal. Present your offer calmly. Don't be concerned about any initial reactions. Be prepared to address any objections. Have a fixed price in mind (which may be higher than the one in your written offer) and don't stray from it.

Tips & Warnings

  • You may want to go to a business broker to help you find a business to buy. These brokers may have more than one business for sale and can help you speed up the process. Many accountants and attorneys act as business brokers, so you might want to ask yours to help you consummate the deal. You can also find listings for brokers in the phone directory or in trade magazines. Be sure to check the reputation of the broker before using one, however.
  • Be objective when analyzing a business. Don't let your dreams allow you to make an emotional decision.
  • Don't get anxious during the negotiating process. Don't let sellers push you by saying that other buyers are interested in buying the business if you don't.
  • Not all existing businesses are sure winners. Risk is inherent in buying a business, just as it is in starting your own.
  • An owner who won't grant you a look-see of his or her business is most likely hiding something from you.
  • A deal negotiated through a broker will likely cost you more than if you negotiated directly with the owner.

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