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What to Know Before Buying a Business

Going into business for yourself is a decision that can change your life, so making sure that each step taken along the way is properly planned out is vital to achieving success. While many people envision taking an idea and building a business from scratch, the increased difficulty of starting a business as well as marketing and growing the startup is overwhelming. There are simply so many things that must go right for a new business to succeed, that many people are turning away from building their own businesses from scratch and are looking into purchasing an existing business.

What Type of Business Should You Purchase?

The question then is, what type of business to purchase. Buying an existing business or buying into an existing organization such as a partnership is less risky than starting a business from scratch. An existing business will already have an established customer base and reputation, which usually translates into immediate income.

Established businesses also have gone through the process of setting up policies and procedures and already have a group of trained employees anxious to continue on with the company. This means that an existing business already has much of the challenging portions of a new business already established, which means you can focus on other elements such as marketing and expanding.

The real importance comes with deciding which type of business to purchase and the location. Many people try to find a business that they believe will have the most potential for financial gain, but this does not always translate into a successful formula because the individuals have no experience in that marketplace and do not understand the nuances necessary to grow the business. One of the more important decisions an individual can make at this stage is searching for a business opportunity in which they have some experience or skills that can be applied to the business. Buying a business that operates in a market that you are familiar or comfortable with dramatically reduces the learning curve needed to get the business up to full speed, which can be the difference between success and failure.

Locating a Company to Buy

Once you have established the type of business you want to acquire or the particular marketplace, the next step is to locate a company for sale. There are a variety of trade associations and real estate brokers available that will feature business listings in your desired area, and there are also many online resources available as well. The use of business brokers is an increasingly popular method that individuals use to find available businesses, but brokers should not be utilized as a final source of information on the viability of the business. That type of information is best discovered through your own investigation.

Checking on the Details of Past Company Performance

Prior to purchasing a business, it is only prudent to find out as much about the organization as you can. Take time to thoroughly review items like:

  • financial statements,
  • balance sheets,
  • employee files,
  • accounts payable and receivable, and
  • any and all other pertinent information that affects the company's performance.

Checking the Legal Records

Checking legal records for any pending litigation the company is involved with is another important element to consider prior to committing to the purchase. Be prepared to sign a non-disclosure agreement at this stage of the negotiations because you will be given access to privileged information regarding the company's operations, and if the deal falls apart, you will be held accountable for ensuring that information stays private and is not utilized for any personal gain.

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