Many find the idea of running a small business appealing, but lose their motivation after dealing with business plans, investors, and legal issues associated with new startups. For those disheartened by such risky undertakings, buying an existing business is often a simpler and safer alternative.
Here is a quick overview of the advantages and disadvantages of buying a business, followed by a short explanation of how a business broker and business attorney can help.
The main reason to buy an existing business is the drastic reduction in startup costs of time, money, and energy. In addition, cash flow may start immediately thanks to existing inventory and receivables. Other benefits include preexisting customer goodwill and easier financing opportunities, if the business has a positive track record.
The biggest block to buying a small business outright is the initial purchasing cost. As the business concept, customer base, brands, and other fundamental work have already been done, the financial costs of acquiring an existing business is usually greater then starting one from nothing. Other possible disadvantages include hidden problems associated with the business and receivables that are valued at the time of purchase, but later turn out to be noncollectable. Good research is the key to avoiding these problems.
Business brokers offer businesses for sale in the same way that real estate agents offer homes for sale. Business owners who want to sell their business can list their business for sale with the business broker. Those seeking to buy a business should contact a business broker to obtain a list of businesses for sale. Expect to sign a confidentiality agreement before getting the details about a particular business; this protects the business owner so others, such as clients, don’t find out that the business is for sale.
A business attorney plays an important role for buyers and sellers alike.
The buyer’s attorney will ensure that the business sale agreements protect the buyer’s rights and expectations. For example, the buyer may expect to get all the inventory in stock, but unless the contract transfers the inventory, the inventory may remain owned by the seller.
The seller’s attorney will ensure that the business sale agreements protect the seller’s rights and expectations. For example, the attorney will ensure that the contract is not ambiguous about how payments are made and the conditions under which the seller can expect to get paid.