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Buying an Existing Business
- By Budgeting Help
- Published 08/10/2007
- Investments
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Buying an Existing Business
There is a significant amount of market research and business development necessary to get your business off the ground in the right way (please see “Home Business Startup” and “Writing a Home Business Plan”). Although you may be motivated or even experienced in business operations, you may be less interested in identifying your market or operations strategy.
With that in mind, you may have alternatives if you seek to get your own business started without the additional time spent in planning and organization stages. There are numerous existing businesses or franchises that can be bought or licensed. By doing so, you are basically buying into an established business system that can generate revenues without the guesswork of starting a new business altogether. You have an established client base and operations, all of which you simply have to maintain to ensure profitability. Additionally, should you need financing, it may be easier to obtain, as the business you buy into will already have a track record of success.
At the same time, the startup cost for an existing business or a franchise is more expensive than establishing your original business model. Even with its proven profitability, there may be mismanagement issues or unforeseen problems that will arise after you purchase the business and take over operations.
Finally, unlike starting your own, where you can decide when and where to operate your business (for instance, at home), an established business is a set system. Changing operating hours and other aspects may alter customer relations and income.
In the end, even with some development and marketing shortcuts, you will still need to be wise when taking the established business or franchise route.
Entrepreneur’s Small Business Encyclopedia offers a few tips in selecting the right established business or franchise for purchase:
• Find a business within an industry that you know and understand: maybe you worked as a staff accountant or IT professional for a large firm; an air conditioning repair company may be too large of a jump since you lack specialized skills in such a business.
• Look for it, let people know: Businesses for sale are often advertised in newspapers and other publications. Additionally, business brokers hired by owners trying to sell their business in exchange for a commission may be able to connect you with the ideal business for you to buy by helping with prescreening, negotiation, and documentation.
Entrepreneur also suggests going to owners of the business you want to buy and making an offer.
• Assess the business’s reputation: Once you find a business you are interested in purchasing, talk with customers, vendors, and other parties associated with the business to understand how they have maintained relationships
• Assess the business’s value: Use projected income statements for 3 to 5 years along with historical balance sheets, income and cashflow statements as well as tax returns to understand the financial health of the business you’re buying.
References
CORPAMERICA. Start a Business
Noreen Berman. How to Start a Business in Your Own Home
Don Silver. Business Plans
With that in mind, you may have alternatives if you seek to get your own business started without the additional time spent in planning and organization stages. There are numerous existing businesses or franchises that can be bought or licensed. By doing so, you are basically buying into an established business system that can generate revenues without the guesswork of starting a new business altogether. You have an established client base and operations, all of which you simply have to maintain to ensure profitability. Additionally, should you need financing, it may be easier to obtain, as the business you buy into will already have a track record of success.
At the same time, the startup cost for an existing business or a franchise is more expensive than establishing your original business model. Even with its proven profitability, there may be mismanagement issues or unforeseen problems that will arise after you purchase the business and take over operations.
Finally, unlike starting your own, where you can decide when and where to operate your business (for instance, at home), an established business is a set system. Changing operating hours and other aspects may alter customer relations and income.
In the end, even with some development and marketing shortcuts, you will still need to be wise when taking the established business or franchise route.
Entrepreneur’s Small Business Encyclopedia offers a few tips in selecting the right established business or franchise for purchase:
• Find a business within an industry that you know and understand: maybe you worked as a staff accountant or IT professional for a large firm; an air conditioning repair company may be too large of a jump since you lack specialized skills in such a business.
• Look for it, let people know: Businesses for sale are often advertised in newspapers and other publications. Additionally, business brokers hired by owners trying to sell their business in exchange for a commission may be able to connect you with the ideal business for you to buy by helping with prescreening, negotiation, and documentation.
Entrepreneur also suggests going to owners of the business you want to buy and making an offer.
• Assess the business’s reputation: Once you find a business you are interested in purchasing, talk with customers, vendors, and other parties associated with the business to understand how they have maintained relationships
• Assess the business’s value: Use projected income statements for 3 to 5 years along with historical balance sheets, income and cashflow statements as well as tax returns to understand the financial health of the business you’re buying.
References
CORPAMERICA. Start a Business
Noreen Berman. How to Start a Business in Your Own Home
Don Silver. Business Plans