How to Buy an Existing Business

Buying your own business can be a wise move. If you are looking for a way to secure your own financial future, opening a business can be a smart move. Many entrepreneurs choose to create their own business models, but buying an existing business can also be a smart move. When you buy an existing business you have the advantage of an established location. You can also gain the security of an existing clientele, but it is important to evaluate each business opportunity carefully.

Step 1

Review the profit and loss statements of the business, along with its tax records. Look for a pattern of earnings growth. A pattern of declining revenues and profits can be a red flag that the current owner is trying to unload a failing business, but it may also point to a business that can be gotten more cheaply and built back up.

Step 2

Obtain a list of all hard assets owned or leased by the company, along with an appraisal of its current value. The types of assets owned will vary according to the type of business–the key is to carefully assess everything you will inherit if you decide to buy the business.

Step 3

Review the maintenance records and logs for all machinery and equipment the business owns. If the business is a bakery, you need to make sure that the ovens, industrial mixers and other equipment has been properly maintained and is in good working order. Prospective buyers of an excavating and paving company need to ensure that the backhoes, bulldozers and other pieces of equipment are not prone to expensive breakdowns. Prospective buyers of a landscape business should ask to see the maintenance records and repair histories of all trucks, mowers and trimmers. Failing to assess the hard assets of the business can be a costly mistake.

Step 4

Ask yourself if you have the expertise necessary to run the business. Reliance on the expertise of the existing workforce is risky, since some of those workers are likely to retire or take jobs elsewhere when they hear that the business is for sale. When buying any type of business, you need to be able to step in and do most, if not all, of the jobs associated with that business. In the case of a landscape business, that could mean anything from operating a commercial lawn mower to choosing the right mulch for a new office park. If you lack the expertise, how easy will it be to get the training you need, and is the current business owner willing to train you as a condition of the sale? In some cases the current business owner might be willing to provide ongoing support, either as part of the sales agreement, or for an extra fee.

Step 5

Review the resumes of all current employees carefully to determine their levels of expertise, years of experience and salary histories. When you buy an existing business, you are in essence buying the current employee base as well–and if recent raises have been skimpy, you might have an office full of workers demanding higher wages as soon as you sign the ownership contract.

Step 6

Contact your attorney to discuss the purchase of the business. If your lawyer is a generalist, it might be helpful to ask for a referral to an attorney who specializes in business law. Buying and selling a business is a complicated matter, and you need to be represented by a lawyer who knows all the ins and outs of the business world.

Step 7

Ask your attorney to recommend an independent appraiser who can accurately assess the value of the business. Do not rely solely on the appraisal provided by the current owner of the business. That appraisal might rely on future profit projections that are unrealistic or overly optimistic.

Step 8

Draw up the paperwork for the purchase of the business. Be sure to read the fine print of the sales contract carefully, then have your lawyer examine it just as thoroughly. Make sure you understand all the payment terms and conditions before you sign. The purchase agreement should clearly spell out the price you are paying, the closing date of the sale, what inventory is to be transferred and when, commitments from current vendors and suppliers to continue doing business with the company and any arrangements for ongoing training and support.

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