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Buying a Business

Before buying a business, determine the real reason for the business being on the market. Some legitimate reasons for sale are retirement, ill health, relocation or involvement in other projects. There might be hidden reasons for selling like decline in business, change in buying patterns resulting in obsolete products, cash flow problems, poor conditions or judgment problems with suppliers or poor management.

The following steps should minimise the risk when buying a business:
• A self evaluation should be undertaken to ensure that running a business is compatible with your own goals, ideals, personality and abilities.
• Decide on what type of business would realise your goals and suit your needs and experience.
• All relevant information should be collected on the business and related macro-aspects such as the market size, trends, technological advancement, etc
• Evaluate the business and the future prospects.
• Determine the price. Advantages of buying an existing business

There are specific advantages in acquiring a business rather than starting you own especially for the less experienced or newcomers. They are:
• A successful business should offer a lower risk than a start-up business
• At least the seller has some history and a track record to base projections on.
• The location may be good.
• A new business requires times to establish, often resulting in an initial trading loss.
• An existing business often has established suppliers.
• A buyer often inherits a trained staff compliment and an existing client base
Disadvantages of a take-over
• There is often a direct correlation between the success of the business and the owner. In other words, a business is often reliant on the flair and personality of the owner
• The new owner may inherit a workforce with entrenched attitudes towards their responsibilities.
• Old equipment may result in production delays. Repairs to or the replacement of assets could put a severe strain on the cash flow
• Due to a lack of experience, the buyer may end up with dead stock, investing fresh money into old inventory
• A buyer may pay too much for the business. Often goodwill is valued unrealistically high which results in lower profits and returns on investments

My advice is always, take time at the beginning. Don’t rush into anything. Do your homework, do a due diligence, leave no stone unturned. You don’t want to end up with someone else’s failed business.

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Categories: Business
  1. November 23, 2010 at 3:50 pm

    ah

  1. November 4, 2010 at 11:31 pm

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