Buy a Business for Sale and Don't Lose Money with a New Business Venture

By: Jim McDonald

Buying an already existing business for sale is a sure way to avoid failure. In saying this, you still have to research any business for sale you are interested in always seek the advice from your accountant and solicitor. Be sure not to rush into to anything and make sure you investigate any potential business for sale. Remember when you use the services of an accountant, solicitor or a business valuation expert; always include their fees in your bottom line. If you choose to cut corners to save money by not using these professional services, may actually cost you money in the long run, a lot of money.

The most important point to remember is to NOT buy a business based on your emotions. This is a common mistake people make when buying a business for sale. People fall in love with a business location, working hours or the big money promised, but without proper research and financial background checks of any business for sale, it will almost certainly end in disaster.

The only sure way to avoid failure when staring a new business is to not start a new business. The current statistics of new businesses that do not make it past the first 12 months of trading is almost 80% and the businesses that do make it past this milestone usually won’t see a profit for another 2 years. Statistics also tell us that people who buy an existing business are much less likely to fail. Buying an existing business that has already made it past the first couple of years trading is the safest option.

Another positive when buying an existing business is they usually have an existing cash flow, where this would take a new business quite a while to develop. Trained staff, developed rapport with suppliers and a customer base are included with an existing business. This is priceless and something that could take a new business quite some time to achieve this.

This said, there can be negatives when buying an established business. If money is no object, then disregard this next point. Established businesses will always be more expensive then starting a new business, and as a result require more funds. In saying this, the banks and investors would be more likely to put up the funds for a business with a track record of profits and sales because there is less risk involved. The better a business is doing, the more money you will have to pay for it. Businesses that are under performing will obviously be priced accordingly.

Always be aware when in the negotiation process that there may be agreements or contracts in place with existing customers. Whether or not these agreements are profitable for this business, they may have to be honored. You need to be aware of these agreements and the impact it has on the business.

If the reputation of the business for sale is less then perfect, for example over priced products, delayed lead times, quality issues etc. You can use this to negotiate a price that you feel is justified.

You might want to find out the reason behind the sale of the business. Is the sale is due to the retirement of the owner or is it for sale for another reason. Legally the owner does not have to disclose the reason behind the sale, however if the owner is not willing to tell you why he is selling, I would pass on his business and move on to the next business for sale.

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