Learn more about planning a business launch.
If you think that starting a business from scratch is too difficult but still want to have your own small business, you have choices. You should consider either buying a franchise.
Buying an existing business has both advantages and disadvantages.
Getting started. The steps involved in purchasing a business are similar to those you need to take whenever you make any major purchase. You need to locate some good businesses to buy, and then research your first choice thoroughly before deciding to go ahead with the deal.
Caution should be exercised throughout the whole process, not only because it will help you to find the business that is right for you, but it will also help you to avoid being taken advantage of by unscrupulous sellers. Your attorney and your accountant should be actively involved in your search (and they may know of good companies for sale, too).
If you know what type of business you are looking for, trade publications and associations for that industry may be a good place to start your search. Some other places to look are:
And here's a hint: You don't have to limit your search to businesses that have been listed for sale. If you find a business that you would like to own, tell the owner you'd like to buy it and make an offer (subject to your attorney's approval of the contract, of course). The worst that can happen is that the owner will say "no."
Once you've found a business. After finding a business that is for sale and that seems a likely prospect for you to run successfully, you should spend at least a month investigating the business. You should definitely get your lawyer and accountant involved in this process, as well.
By thoroughly investigating the business (doing "due diligence," in business-speak), you increase the chances of making a decision that is right for you. The time spent investigating the business, the industry, and the market will make you confident that your decision to buy (or not to buy) was the right one.
In many cases, the seller will not give you any sensitive information about the business unless you have signed a letter of intent that, essentially, makes a non-binding offer for the business, and unless you have also signed a confidentiality agreement promising that you'll use the information only to make a decision about buying.
Keep in mind that if a business is for sale, there must be a reason why. That reason may be a problem you can solve, such as bad management, or a problem that you can't, such as an obsolete product or a poor local economy. A thorough investigation should reveal the existing problems and enable you to weigh those problems in your purchasing decision.
A business investigation is usually performed before the business is bought, but can continue after the sale. In such a case, some of the sales proceeds will probably be held in escrow until the investigation is completed, or your contract may provide that the seller will reimburse you if certain types of problems turn up.
At a minimum, you should examine the following documents:
As a final note of caution, when purchasing a business, don't buy the receivables. If you do, at least structure the purchase so that you are reimbursed for uncollectable receivables. This is generally done by establishing an escrow account with part of the purchase price. The account can be used to reimburse you for certain problems that creep up during the first year of operations; any money remaining at the end of the period will go to the seller.
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