How to Buy an Existing Business

Starting a business from scratch is always a risky venture because you have no way of knowing whether your innovative, engaging ideas will actually pan out in practice. When you build a business from the ground up, you risk failing in the very first year, which happens to at least 40% of all businesses started. However, if you buy an existing business that has been in operation for several years, you drop some of the risk at the doorstep.

The major drawback to buying an existing business (versus starting one of your own) is that it is far more expensive than initiating a start-up. You're not only paying for the business itself, but also for its income, it's already-trained employees, it's proven product line and everything else that comes part-and-parcel with an existing business. The good news is that financial institutions are more likely to approve large loans for an existing business than they are for the business plan of a start-up. If the business is making a consistent profit and if the forecasts for income are good, banks and credit unions are far more likely to be on-board.

Once you've decided to buy an existing business, however, the decision-making challenges aren't over. You still have to find a business you like and that promises future income. Choosing a business to purchase isn't usually accomplished in just a few days or even a few weeks; you'll need to spend quite a long time going over paperwork, investigating the business and appraising the value of the existing business.

Examine potential industries. The first step is to decide on an industry that fits your skills and experience. You might want to go with the industry of your last business venture or place of employment, or you might want to branch out into unexplored territory. Keep in mind, however, that choosing an existing business with which you have experience will make the process go much more smoothly.