Buying an existing business: Should you consider it?

If dreaming is as easy as falling asleep, why should fulfilling your dream be any more difficult, especially when it comes to owning a business? Why not buy one already in full swing? You can step into an operation with a reputation, cash flow and customers.

Most wanna-be entrepreneurs do end up weighing the advantages of buying a business vs. baking one from scratch. Perhaps they have accumulated some cash and no longer wish to work for someone else. Maybe they have the experience and skills to run a small business, but no desire to start it from the ground up.

The Small Business Administration estimates that nearly one-third of all independently owned, non-franchised business startups are discontinued within their first year of operation and two-thirds are shut down within the first five. Makes an established firm with a solid history look pretty good.

But buying a business has its share of tedious legwork and planning, too. You may not have to find a location or customers, but you do have to make sure the business is in the right area and thriving.

What to consider
There are several key elements to consider when looking at a business for sale, both tangible and intangible. But the first question you want answered is "Why?" Why are the owners selling the business if it's the gold mine they profess it to be? There should be a good reason from the owners, anything from retirement to just plain boredom.

Take that answer and begin the detective work needed to evaluate the business. Look at everything and ask questions of everyone involved, not just the owner, but the competition, the local chamber of commerce, neighborhood programs, trade associations, suppliers and customers.

Of course, the seller may want the pending sale to be kept quiet, so make sure he's aware that you plan to approach outside sources. Best not to botch the deal before you've even begun to negotiate.

You can do much of the investigative labor, but eventually you will need the help of an accountant and an attorney familiar with the buying and selling of businesses. They can take an objective view, and help you analyze the significance of the information you gather.