Buying an Existing Business

Posted by: Rod Kurtz on January 3, 2007

If you’re considering purchasing an existing business, investigate it just as you would a business startup. Ask yourself:

• Do I have experience in this type of business?

• Will I enjoy running the business six months or six years from now?

• Do I have the finances to buy the business and keep it operational?

Then ask these types of questions about the existing business:

• What’s its history over the past five years?

• Have revenues been increasing or decreasing?

• Why is the owner selling?

• What do customers say about the business?

If no major roadblocks exist after the initial investigation, you’re ready to establish a fair purchase price. A common formula combines the market value of hard assets, the cost value of the inventory, any liabilities, and the goodwill value of the business.

When you and the seller come close to agreeing on a price, get the professionals involved. An accountant experienced in buying and selling businesses should thoroughly review the business’ financial picture of the past five years and help you negotiate the final purchase price. Also have an attorney prepare a purchase offer and the final sales contract.

Gene Fairbrother
ShopTalk 800® Business Consultant
National Association for the Self-Employed
Dallas

Reader Comments

Ricki Wines

September 23, 2007 11:38 AM

I am looking at purchasing a coffee shop. The annual income is $151,557.00 The inventory/equipment list is $62,157. After all expenses, including salaries, they profited $11,093 for 2006.

They are asking $129,000. Does this seem like a reasonable selling price?

Howard Owen

October 8, 2007 7:31 AM

Why are they selling?
Is $11,093 enough to service the debt from the purchase?
What was the owner's compensation?
Too many unanswered questions to answer your initial query.
Regards,
Howard

Michael Cestaro

October 28, 2007 7:39 PM

My wife and I are looking to purchase a deli/breakfast lunch business. We met with the owner to talk numbers. His asking price turnkey is $160,000. Establishment been in business for 18 yrs. 1.5 yrs under his ownership. Does not enjoy the deli business, hence the sale. $331,000 gross sales/yr. Total cost/mnth is approx $21,000/mnth, his draw included. Seems like a positive opportuniy. What should be the next step?

rainy

February 27, 2008 6:19 PM

I really want to buy a store/deli.

I am starting with nothing, but know that I can be very sucessful. Where do I start? What is out there for people like myself?

cindy nevins

March 1, 2008 12:17 PM

I went into a business partnership about a year and a half ago. The business is a gift shop, but my partner and I have very different ideas regarding the product that we carry. I have decided that I would like out of the business. What types of things do we need to take into consideration to determine what my buyout will be.

Curious

September 16, 2008 10:36 PM

Looking to buy a cosmetics stand in a
flea market setting.
Owner is firm on price.
$60,000
Inventory $100,000
Gross $120,000 (2007)
Owner Salary $30,000
Includes training
Yea or Nay
2008-2009 is looking quite scary right
now.
Hold or Fold

Greg L.

October 22, 2009 2:11 PM

I am considering the purchase of my competitions outdoor equipment business. We have come to an agreement on the real estate but are struggling with an agreement on the paid inventory. I have offered $.50 on the dollar, is this fair? There is good inventory and there is some bad inventory.

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