Buying an Existing Business
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Purchasing an established business can lighten the
burden of start-up costs, lag time without a
salary, establishing markets, and other costs
associated with the creation of a new business.
Established businesses may have existing good will
(intangible assets such as reputation or historic
value). The decision to buy a
business requires careful evaluation of many
factors including pricing and financing your
purchase. The potential buyer
must understand their criteria for selecting,
their motivation for wanting to purchase the
business and the motivations of the business
Consideration should be given
to the following:
What is your experience with
the industry and/or management?
Does the business match your
Is the business what you enjoy
Is it in a desirable location?
What are you willing to
Can you get financing?
What size business do you
desire in terms of sales, profit and employees?
If the business under
consideration has a product or service outside your area of expertise, it is
important to make certain that the key employees will stay after the sale or
that you can hire someone with similar experience.
Finding a Business For Sale
Finding a good business
opportunity is not always easy. Sources to consider:
Trade sources and suppliers
Friends and acquaintances
Intermediaries such as
business brokers or acquisition specialists
Real estate brokers, if there
is property for sale with the business
Targeting a business and
inquiring about its availability
Evaluating the Business
As a buyer, first evaluate a
business by reviewing its history and the way it operates. Develop an
understanding of the business method of acquiring and serving its customers,
determine how it generates its sales, learn its marketing strategy, and
develop an understanding of its finance and operations functions.
Checklist of material for
the evaluation process*
To evaluate the business and
make a reasoned buying decision, the following information (if applicable)
will be needed from the existing business:
3-5 years financial statements
3-5 years tax returns
Interim financial statements
Accounts receivable and aging
Accounts payable and aging
Details of equipment leases
and other contingent financial commitments
Supplier list (including
Customer list (including
Organizational charts and
Copies of all real estate,
leases, or deeds
Industry information to which
the owners may have access
*Checklist provided by the
SABRE Group (Confidential Business Sales and Valuations of Greensboro /
Raleigh / Durham / Greenville)
Questions/Issues to Address
Evaluate the business’ potential according to your goals,
employer responsibilities, product or service demand, market, and financial
considerations. Ask and get answers to questions regarding all aspects of an
existing business before entering any purchase agreements. The services of
an accountant, attorney, banker and your local Small Business and Technology
Development Center counselor are recommended when buying an existing
business. Investigation and research will be crucial to uncovering as much
information as possible about the business for sale. Start with basic
questions, like those listed below. Others may be required depending on the
Why is the business for sale?
(Attempt to delve below the initial answer the owner may give.) Will the
owner finance a portion of the purchase price?
Has it been making a profit?
If not, do you have a plan to make the business profitable? Will the
business be able to pay you a reasonable salary, make the loan payments if
you are getting a loan to purchase the business, and still make a profit?
Is the business worth the
asking price? (Get the help of a Small Business and Technology Development
Counselor www.sbtdc.org or accountant
help you evaluate the value of the business.)
Are all of the books in order
and well maintained? Have you reviewed the past and current financial
statements with the counsel of an accountant? Are there any liens against
the property for sale? Are there any claims on inventory or equipment?
Have the taxes been paid to date?
What kind of reputation does
the establishment have currently? How would you change that reputation, if
What type of customers make up
the client base - a few large clients or many smaller customers? Are they
loyal because of a personal relationship with the owner or because of the
level of quality service?
Will the sale include
equipment, property, inventory, debts, employee contracts, name, logo,
slogans, signage, customer files, etc.?
Have you reviewed existing
business contracts and the effect of the transaction on those contracts?
Will the lease be transferred
into your name or will the owner require a new lease? How much time
remains on the lease? (The bank may require a lease for the length of your
loan.) Is the location suitable for your plans? Are there any
environmental concerns with the location? Are there licensing concerns?
What contingent liabilities
What policies have been
established with the employees regarding work environment, salary /
commissions, benefits, vacation pay, and fringe benefits?
Will the owner be cooperative
with the transition of ownership with regard to tax issues, utility
transfers, government requirements, employees, and other procedures?
Are there any environmental
issues with respect to your chosen business?
If you are using a business
broker, remember that s/he is representing the interest of the seller.
Consider a non-compete
agreement with existing owner(s).
Consider a contractual
arrangement with present owners for a period of consultation.