WHAT SHOULD YOU KNOW BEFORE BUYING A BUSINESS?

Many people think of starting a business from scratch, which involves coming up with your own ideas and building the business from the ground up. Starting from scratch can present you with some challenges, including building a customer base, marketing your business, hiring employees and creating cash flow.

YOU CAN BUY AN EXISTING BUSINESS

It is sometimes less risky to buy an existing business. You take over a company that should already have cash flow and profits. You may have an established customer base, a good reputation and trained employees who understand the business. There is no need to set up new procedures, or new systems.

On the other hand, you will probably pay more for an existing business. Historically it has been easier to get financing to buy an existing business than to start a new one, but in the current financial atmosphere, getting financing can be tricky for anyone. Look for a business that gives you ownership of valuable legal rights such as patents or copyrights, which you can turn to your advantage.

First, choose the type of business that best suits you. It is almost always best to work in an industry where you have experience. Moreover, an activity you are passionate about can help keep you interested during the long hours and days sure to come as your business grows. Geography is also important, since different areas support different types of business (you wouldnt want to open a boat store in the middle of the desert).

DO YOUR DUE DILIGENCE!

It is a good idea to look at other businesses of the same type in your area. If there are many similar businesses, the field may be over-saturated. If there are none, there may be a good reason. Think about the financial climate. Be careful about opening a business that requires its clients to have lots of disposable income if the economy is struggling. Walmart has done very well in the economic downturn because of low prices, and that business model is worth considering.

If you are serious about acquiring a business but unsure about how to get started, consider finding a business broker. Brokers are hired by business sellers to find buyers and help with negotiations. Business brokers charge commissions that can run between five and fifteen percent of the purchase price depending on the total cost and the services provided.