Buying an Existing Business Edited by Noémi Piricz

Buying an Existing Business Edited by: Noémi Piricz Read: Thomas W. Zimmerer – Norman M. Scarborough: Essentials of Entrepreneurship and Small Business Management, Pearson Education International 2005, Chapter 5

l For some people, buying an existing business is a better option than starting from scratch. l But if someone wants to buy a business, he/she'll need to do some thorough research to make sure that what he/she sees is what he/she is going to get. l What Type of Business Should One Buy?

Finding a Business to Buy l It depends on the types of work he has done l and on the he classes he has taken, or perhaps on his special skills l He should buy a business in an industry that he knows l He should try to choose a field that he loves

Finding a Business to Buy l After he has decided what type of business he wants to buy, he is ready to begin his hunt for the perfect company. l He should ask business associates and friends, trade associations, real estate brokers, and business suppliers. Or let him read newspaper ads. l Finally, there are business brokers - people who earn a commission from business owners who need help finding buyers

Research the Business's History and Finances l Before he seriously considers buying a particular business, he should find out as much as he can about it:

l Let him review copies of the business's certified financial records, including cash flow statements, balance sheets, accounts payable and receivable, l employee files, including benefits and any employee contracts, l and major contracts and leases, l as well as any past lawsuits l and other relevant information.

l He shouldn't be shy about asking for information about the business. l He should also review any business records that will provide him with information to help him decide whether the business is a smart purchase. l If the seller refuses to supply any of this information, or if he finds any misinformation, this may be a sign that he should look elsewhere for the right business to buy.

Closing the Deal l He (potential buyer) and the owner will have to agree on a fair purchase price. l A good way to do this is to hire an experienced appraiser who can estimate the company's fair market value. l He and the business owner will agree on which assets you will buy and the terms of payment l He'll need to create a written sales agreement and possibly have a lawyer review it before he signs.

Key Definitions l business brokers l appraiser