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You'd Better Shop Around

Buying an existing business? Smart idea. But before you sign on the dotted line, make sure the business is all it's cracked up to be.

After spending 18 years working for a Fortune 500 corporation, and moving and traveling continually, Ian Mitchell put away his suitcases in 1997 and went into business for himself. "My wife and I had been thinking about it for a long time. Our daughter was in high school, and we decided she needed some stability," says Mitchell, 53, who bought The Mary Curtis Shop in Concord, Massachusetts, a bustling gift store, decoy shop, printing business, and coffee shop.

Mitchell decided to buy an existing business rather than start one from scratch because he wanted to try something new. "To start a business, you need expertise in that field, and I didn't want to go into the same career," says Mitchell. He chose the business because it was well-established, showed a good profit, and had an experienced staff and an impeccable reputation.

Buying an existing business is an excellent option often overlooked by entrepreneurs, according to Russell Brown, author of Strategies for Successfully Buying or Selling a Business (Business Book Press). Often, the perceptions that deter entrepreneurs from considering buying a business are simply untrue. Many entrepreneurs, for example, think buying a business is too expensive, or they don't understand the process and are intimidated by the idea of more experienced businesspeople.

Brown urges all prospective business owners to at least look into the option of purchasing. "There are so many advantages to buying a business," he explains. "From day one, you have existing customers and an immediate income. You also have all the necessary supplies and equipment, and trained, qualified employees. In many cases, you can use existing suppliers and credit lines, and the necessary licenses and permits are already in place. Add to this free training and consultation from the seller." What could be better?

Buying a business is also usually less risky than starting up on your own. "You have access to the company's earnings history, which gives you a good idea of what the business will make," says Brown. "An existing business has a proven track record, and most established organizations tend to stay in business and keep making money. When people buy a business, they almost always increase sales and profits the first few years because of the new energy and ideas they bring to it."

And, contrary to popular belief, buying a business is often less expensive than starting the same business from scratch. "An estimated 80 percent of small-business sales are financed by the seller," says Brown. "Generally the buyer has to come up with 30 to 40 percent in cash, and then owe the seller the remainder."

Of the estimated 6.5 million businesses sold annually, many are small, very affordable businesses or firms, according to Tom West, a former business broker and founder of the International Business Brokerage Association. West edited The 1999 Business Reference Guide (Business Brokerage Press), which gives information on pricing businesses, sample contracts and trade association information, for researching various industries.

According to Brown, "When you buy a strong business that has a good reputation in the community, as opposed to starting a new one, it's easier to solicit loans from family and friends, or get them involved in a Subchapter S corporation, which allows them to become investors."

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This article was originally published in the August 1999 print edition of Entrepreneur with the headline: You'd Better Shop Around.

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