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Buying an existing business is one option to start your new venture. You can benefit from an operation that has an established customer base and is already generating cash flow and profits, but there are a few items you'll want to consider to make sure it's the right deal for you.
Buying an existing business is one way of getting your new venture up and running. Perhaps a business owner is getting ready to retire and wants to pass her shop to someone new, or you have a strong business plan that you think would reinvigorate an existing enterprise. There are many reasons why buying an existing business can be a good option, such as reduced start up costs and time, an existing customer base and pre-existing knowledge of how the business performs.
However, it’s critical to do your due diligence and make sure that the business you’re buying is foundationally sound – for instance, you may not want to buy a business that has many debts that you may owe or need to collect. Also make a clear assessment of what you are buying: does the business come with the building, or is it still being leased? What equipment and assets will be included? For instance, if it’s a restaurant, will you be able to keep the menu and use the recipes? Will you take over the website and have access to the customer mailing lists?
A business broker is a licensed professional for buying and selling businesses. Similar to a real estate broker, they can act as an intermediary between you and the business owner and help you locate a business to purchase, assess the value of the business and negotiate the purchase. Business brokers typically operate on a commission, so make sure that you find someone who you work well with and trust. Depending on the complexity of the purchase, you may also consider hiring an attorney to help you prepare an asset purchase agreement and negotiate the final terms of the transaction.
There are many things you should consider before purchasing a business. Some key items include:
Inventory and Assets
Zoning and Permits
Contracts, Legal Documents and Loan Information
Reputation and Relationships
Tax Returns, Financial Statements, and Sales Records for the Past Five Years
Your Business Plan