Buying A Business – Know what you want to buy | Articles

Buying A Business – Know what you want to buy | Articles

Posted by valeri on July 10, 2010 · Leave a Comment

There is constant debate which runs in an Entrepreneurs’ mind whether to start a business from scratch or acquire/buy an existing business. There is no straight answer to this. Much depends upon entrepreneurs own personal background, understanding of interested sector/industry and experience of running a business. To add to his confusion, there are numerous businesses for sale available in majority of the market and in most of the sectors/industries.

Let us look into the clear advantages of buying an existing business

You can begin running the operation immediately which saves you time and energy
Proven business model with established customer and clients
Existing Goodwill (For Positive, you might have to pay a higher premium) and established brand
Less difficulty in securing financing, as lenders prefer businesses with a track record
Experience and trained employee could be a huge advantage ( To be negotiated)
Built and developed infrastructure like building, office, computers
Developed Policy & Procedures with system and processes in place
Immediate cash flow starts as a reliable income (if the business is profitable, otherwise you might have to put in additional cash)

Before you contemplate buying a business, you should first deliberate on what is the right business for you to buy. You could hire a consultant or an advisory to do the work for you but it is strongly recommended that the entrepreneur does his own research on the business he wishes to buy. There is no substitute of one’s own research and the process itself is invaluable as it would set up your mind of various business and environment that influences the business. Apart from the obvious economic reason for acquiring (this is also true for starting up fresh); there are couple of questions which the entrepreneur has to answer himself. Does the intended business excite him/her? Is s/he passionate about it? Would it give him enough incentive and drive to wake up every morning to deal with various challenges and issues that come up in running a business? Unless the answers to these questions are in affirmative, you should do a rethink. Do not settle, keep looking till you find a business you will love running and you care deeply about. This would keep you motivated and focused even in most challenging and trying times.

Once you have identified a business to buy, you should do a comprehensive due diligence before you sign the purchase agreement. Things which look too good to be true should be given careful scrutiny. If you think your judgement could be biased, get your friend, spouse or anyone who could give you an honest and third party opinion. They might raise questions or issues, however small it might be, which might have not occurred to you.There is no substitute of getting sound technical and legal advice on the business you wish to acquire. If possible, try to speak with sector specialist or do a comprehensive research on the sector or industry you wish to acquire. You might end up buying a business which has lost its steam and does not have product and services to meet the new demand of the market.

Buying a running business might work well with someone who has prior experience of managing a business. A would-be-entrepreneur who is just decided to get into business for the first time might have a difficulty running it. It helps to start up from scratch then, because you would then follow a natural learning curve which comes with building an enterprise. Nevertheless, if you plan to acquire a business, it would not be a bad idea to team up with someone who has an experience of operating a business.

The job does not end with buying a successful and profitable business but to take in forward in the ever changing environment. This would require not only personal commitment and dedication but sacrifices in various aspect of your life. And you should be prepared for it. Your family and friends may not be directly involved in the business but you would need their constant support and understanding to make your professional and personal life rich and effective.

Abhijit Maheswari is the founder and CEO of Mergerstreet.com, an online market place for entrepreneurs, business owners, investors, investment bankers, consultants and brokers seeking to buy or sell a business or to raise capital for a business or venture. Abhijit has degrees in Economics and Finance and has experience in retailing, business consulting and Investment Banking.

At Mergerstreet, browse and explore businesses for sale, Merger and Acquisition, Joint Venture, Buy-outs possibilities along with Seed, Early, Late stage, project finance and distressed assets investments opportunities.