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Considering the purchase of an existing business? Proceed with caution

On Behalf of | Jan 27, 2017 | Banking & Business Transactions

While most people think the initial issue that all budding entrepreneurs must decide is the selection of a business entity, meaning whether they wish to organize as a sole proprietorship, corporation or limited liability country, this is not actually the case.

Indeed, the first issue those looking to get into business for themselves must decide is whether they want to start their own business, operate a franchise or purchase an existing business.

If they are leaning toward purchasing an existing business, experts indicate that there are some points they will want to consider before heading down this exciting path.

First, they urge entrepreneurs to consider the pros and cons of purchasing an existing business, as doing so can help verify whether this is really the route they want to take.

Potential pros of purchasing an existing business

  • Start-up costs don’t have to be incurred
  • Vendor relationships are already established
  • Availability of financial history from which to draw conclusions
  • Little to no delay in securing a customer base

Potential cons of purchasing an existing business

  • Vendor relationships may be poor owing to outstanding bills
  • The financial history provided may indicate past problems
  • The customer base may be relatively small

If an entrepreneur is willing to consider the purchase of an existing business after consideration of these points, the next logical steps, say experts, are to find a good business fit, conduct a comprehensive analysis of its worth (assets, client base, earning potential, etc.) and, if this proves positive, secure the necessary outside financing.

Before signing on the dotted line, however, they indicate that any and all documents must be carefully reviewed in order to confirm, among other things, that the entrepreneur is not assuming any preexisting liabilities of which they are otherwise unaware and that all taxes have been paid in full.   

It’s for this reason that anyone mulling the purchase of an existing business should give very serious consideration to speaking with an experienced legal professional who can answer their questions, review documentation, and protect their best interests throughout the entire process.