Buying a Business: An Introduction To

Last Updated: September 14, 2009

If you want to sell a business and not buy a business, visit: Selling a Business

Note:The following article will not in its self cover the depth of knowledge and experience required to successfully buy a business (that is what the professionals are for) but it will give you a very good insight to the process.

Basically, its a complex procedure that needs careful planning and the knowledge of those who know the difference between a good prospect and a burnt-out business.

Chapter 1: Introduction

You may want to buy an existing business instead of starting a new one yourself from scratch. Your inspiration behind this could be that you believe all the initial work of setting up and establishing the business is not your greatest ability: but one issue always sticks out when buying a business: you do not know why the business is up for sale!

There are many reasons for people selling a business and you may immediately think because it is losing money.

This is a common reason, but a lot of people do sell for the opposite reason: why not cash in whilst the business is successful? Other reasons for selling include illness or retirement, but be warned: there are businesses that will try to disguise poor performance and reputation in their desperate attempt to sell.

There is a lot of work and effort behind buying a business from the initial search to confirming the deal. It will take time and considerable research to make sure that you find the bargain you are looking for. This will require professional assistance to help ensure that the business is what it is reported to be, and risk is reduced (but never eliminated).

1a) Advantages of Buying an Existing Business

The business is already established so all the work of setting up is out of the way.
There is a higher chance of success than starting from scratch: over 50% of new small businesses fail due to lack of capital and poor management within three-years.
The business will already have a customer database for you to trade by.
Although you may change this, there will be a business plan for you to work alongside (even better if the business is successful at the time of buying).
Once you have bought the business, it can then be sold on by yourself.
Most businesses won’t require heavy financ ing due to the immediate cash flow that is being produced.
Getting finance for the business is easier to generate than it would be for a new business: banks and venture capitalists prefer to loan money to businesses that have a track record.

1b) Disadvantages of Buying a Business

If the business isn’t already successful at the time of buying, it may take a lot of financing to get it moving.
It may require you to put in long hours to maintain/improve the performance of the business.
The costs of finding and researching the business can be high especially if you employ professional assistance (which is recommended).

1c) Things to Consider

Before you make that final decision of buying a business, it is worth considering to yourself the following:

Why do you want to buy a business?
Do you have the expertise/experience to run and manage a business?
Are you prepared to work long hours ?
Do you have sufficient finance to invest into a business?
If not, can you generate sufficient finance?
If you have a partner, how much will they invest?
Did the previous owner sell-out due to increasing competition ? (will the ex-owner be competition?)