Buying a Business

Buying a business rather than starting one can give you a head start

By Constance Gustke

Don't want to start your own business? Try buying one. It's a great way to sprint into the marketplace without the headaches of finding financing and building customer loyalty. Still, it takes lots of legwork to negotiate the right deal.

Here are some of the other advantages in buying a business:

Cash flow begins quickly
Customer base is already established
Systems, such as accounting, are already in place
Profitable businesses command easier financing

Make sure the business matches your objectives

Experts advise writing down a target business profile before you begin looking. It should contain concrete information like investment amounts, risk levels, profitability targets and expected revenues. Also pinpoint geographical areas and industries, which you'll want to be familiar with. Personal objectives include time spent on learning curves and managing the business.
Try: Weigh the pros and cons of startups versus existing businesses at the SBA. Or get free business advice at SCORE.

Do your due diligence

Take advantage of brokers, industry sources, networking and classified ads in newspapers to look for a business. It's also a good idea to assemble a team of professionals — a accountant, lawyer and banker — who can help you verify company data that can make or break the sale.
Try: To find out what businesses are currently for sale, go to BizBuySell.com or GWBS.com.

Scrutinize the business inside and out

Begin with a preliminary analysis. It checks the business's reputation, existing customers, and credit reporting agencies for complaints against the business. If the company passes this test, have your team begin digging into the numbers, such as projected financial returns and asking price. Delve into income statements, balance sheets and tax returns for the past three years. Sit in on the business for a few days to see how well it operates.
Try: Find a checklist of factors to consider at Nolo.com.

Make an offer based on a fair price

Once you've done your homework, present a concise, well-analyzed offer to a seller in writing. Be ready to walk away from the deal if negotiation is a problem. Also consider linking your bid to customer retention, which is crucial for small businesses.
Try: Avoid letting your enthusiasm dictate what price you pay. School yourself in valuations – even if you have an accountant and lawyer – at University of Florida's Small Business Development Center.

Consider buying a franchise

If you're concerned about buying a business from an independent operator, then buying a franchise maybe the best bet for you. Franchising gives you a head start with name recognition, marketing support and a proven concept.
Try: The SBA provides a good overview of what's involved in buying a franchise. Take a look at the advantages and disadvantages of buying a franchise versus buying a business at MyOwnBusiness.org.

Don't be too anxious to buy, since you'll likely end up over-paying.
Save 10% of your investment in a contingency fund for unexpected expenses.
Beware of overestimating revenues.
Consider asking the seller to stay during the transition period.
Ask about seller financing.
Don't pay for receivables that are over 90-days past due.

Buying a Business