You can start from scratch if you want to but starting from scratch presents some distinct disadvantages, including the difficulty of building a customer base, marketing the new business, hiring employees and establishing cash flow all without a track record or reputation to go on. When you buy a business, you take over an operation that is already generating cash flow and profits. You have an established customer base and reputation as well as employees who are familiar with all aspects of the business. On the downside, buying a business is often more costly than starting from scratch. However, it is often easier to get financing to buy an existing business than to start a new one. Bankers and investors generally feel more comfortable dealing with a business that already has a proven track record.
If you are not careful, you could get stuck with obsolete inventory, uncooperative employees, or outdated distribution methods. Buying the perfect business starts with choosing the right type of business for you. Think long and hard about the types of businesses you are interested in and which are the best matches with your skills and experience. Next, pinpoint the geographical area where you want to own a business.
Assess the labour pool and costs of doing business in that area, including wages and taxes, to make sure they are acceptable to you. Once you have chosen a region and an industry to focus on, investigate every business in the area that meets your requirements. Start by looking in the local newspaper’s classified ad section under "Business Opportunities” or "Businesses for Sale. And just because a business is not listed does not mean it is not for sale.
Put your networking abilities and business contacts to use, and you are likely to hear of other businesses that might be good prospects. You also need to assess the company’s reputation and the strength of its business relationships. Talk to existing customers, suppliers, and vendors about their relationships with the business. Contact the Better Business Bureau, industry associations, and licensing and credit-reporting agencies to make sure there are no complaints against the business.
While you and your accountant review key financial ratios and performance figures, you and your attorney should investigate the business’s legal status. Legal business liabilities take many forms and may be hidden so deeply that even the seller honestly does not know they exist.
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