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Exploring and Buying an Existing Business 

Many entrepreneurs get their “start” through purchasing an existing business…which can be an outstanding way to “quench” the initial entrepreneurial thirst. Early in my professional career, I had the good fortune of working with a number of small business clients who had opportunities to purchase successful small businesses. Most undertook the task of working through an exhaustive evaluation of the “goods and bads” of their respective business interest, often times finding out more than they thought they would find…both positive and negative. I remember in one particular instance, the opportunity to purchase the business had absolutely no negatives to be found…thriving business, long history or success, great inventory and future opportunity, strong small community support…so what could go wrong? Unfortunately in this situation, the prospective buyers had gone through some difficult times financially a few years earlier and because of this, the purchase could not move forward. A “key” aspects to keep in mind here is to remember the importance of a good credit history if financing is necessary.

https://www.sba.gov/course/buying-business/ 

As is highlighted in your textbook as well as the attached pdf document, there are many “things” which must be considered thoroughly when looking at purchasing an existing small business. For Assignment 4, review the attachment regarding buying an existing business and identify those areas that you feel are imperative for consideration when looking at a possible purchase.  Use the link below to watch the Small Business Administration Learning Center video on Buying a Business and link into resources such as SCORE (www.score.org) and Youtube.com and search “buying an existing business” and review/watch information related to things other to consider. In 3-4 pages, thoroughly discuss this approach to getting involved in small business ownership. Included in the narrative should also be a discussion related to “valuation” of an existing business…how can you ensure that you are paying a fair price for the operation…and what factors should be considered when determining a fair price. Discuss whether you believe “goodwill” should play a part in determining price.

SLIDES:

BUYING AN EXISTING BUSINESS, AN EXCELLENT ROUTE TO BUSINESS OWNERSHIP!! WHAT “MAJOR LEAGUE” QUESTION NEEDS TO BE ANSWERED WHEN THINKING ABOUT THIS OPTION?????

WHY DO THEY WANT TO SELL??? Business Evaluation Checklist 1. High potential for future growth 2. Financial condition 3. Current audited statements and tax returns 4. Copies of current contracts 5. Lawsuits 6. Debts or liens against it 7. Business accounts past due

How many customers does it serve on a regular basis? What makes up its market? Does a single customer account for a large portion of the business? Seasonal, Marketing plan, Exclusive rights to products/services, Who are the suppliers?Is it a “fad” business? What’s the market share? Competition, Current inventory status…what’s it worth? How many employees and what positions, including tenure with the business?

VALUING A BUSINESS…

ASSET VALUE (Modified Book, Replacement, Liquidation)
ANNUAL PROFITS
RETURN ON INVESTMENT
GOODWILL…GOODWILL??(THOSE “WARM, FUZZY FEELINGS”)

CARDINAL RULES FOR BUYING A BUSINESS
BE PATIENT
REMAIN OBJECTIVE AT ALL TIMES
MAINTAIN ALTERNATIVES
ADOPT A “CAN DO” ATTITUDE
PUT TOGETHER A “GOOD TEAM”…LAWYER, CPA, BUSINESS ADVISORS