South-Western - Management  
Buying an Existing Business Comes With Advantages, Challenges
Topic Entrepreneurism
Key Words Buying a business
InfoTrac Reference CJ101973128
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News Story

Buying a business, compared to starting a business from scratch, has some obvious benefits, like the fact that you immediately have a customer base and revenue stream. There is an explosion of people looking to buy businesses now, with the large number of layoffs occurring and the fear of it. Here are some good questions to ask and information to obtain:

  1. Why is the owner selling?
  2. Why isn't one of the partners interested in buying the business?
  3. What are the details of the business?
  4. How was the selling price determined?
  5. What are the reasons behind the business' growth?
  6. How much special knowledge is needed to run the business?
  7. Are accounts receivables, or unpaid bills, in the sale?
  8. What percentage of the business is related to warranties?
  9. Will the owner sign a noncompete agreement?
  10. Ask for seller financing.
  11. Does the business have debt?
  12. Who are the competitors?
  13. Never take the owner's word on financials.
  14. Prove yourself to the seller.
  15. Make sure you can easily transfer licenses and trade names owned by the seller.
  16. Do you want to keep the key people?
  17. Ensure the owner is going to work for you for a specified period.
  18. Focus on whatever it is you do best and hire others to do the rest.
  19. Your contract should state that up until the last day of due diligence, the buyer has the right to pull out of the deal, for any reason.


What is a noncompete agreement? Who does it protect?


The final point refers to due diligence. Define this term, and explain why it is important.

Source "Buying an Existing Business Comes With Advantages, Challenges," Knight Ridder/Tribune Business News May 19, 2003.
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