A. There can be many good reasons why buying an existing business could make good business sense. Remember though, that the buyer will be taking on the legacy of the previous business owner. The following are some of the advantages of buying a business:

1. Some of the groundwork to get the business up and running would have been done
2. It may be easier to obtain finance as the business would have a proven track record
3. A market for the product or service would have already been demonstrated
4. There may be established customers, a reliable income and a reputation to capitalize and build on.
5. There would be a useful network of contacts, a business plan and marketing method should already be in place
6. Existing employees would have experience that you can draw upon
7. Many of the problems would have been discovered and solved already

A. Beauty is in the eye of the beholder. Most Buyers want to own a profitable, well-managed business in an industry that holds a personal interest for them. On the other hand, some Buyers may look for opportunities that offer turnaround potential, where they can apply their special skills. In general, there is no industry that is particularly better than another. However, there are specific businesses that are more successful than others - even in the same industry. A buyer should only consider a business he or she will feel comfortable owning and operating. The time and effort which will be required is an important consideration as is how much the buyer can afford to pay for the business. The amount of cash the buyer hopes or needs to regularly take out of the business is very important, especially if the business is to be the buyer's only source of income. Because many experts believe you should not purchase a business unless you can make it better, it is helpful if a buyer has some definite ideas on how to improve the purchased business.

A. Generally speaking, the buyer and seller establish an asking price based on what they think the business will sell for based on:

1. Market considerations
2. A review of the financial records of the business
3. The general health of the business
4. A prospective buyer’s ability to finance the business acquisition.

The financial goals, personal objectives, and reasons the seller is selling the business are frequently considered in the asking price. However, many factors could affect the perception of value of the business. It might be the quality of the books and records, past financial performance, the future growth potential of the business or a vast combination of other factors. But in general, the more cash demanded by the seller at closing, the lower the selling price and the smaller the cash requirements, or cash equivalents, of the seller the high the selling price. In many cases, the “deal structure” (the terms of the sale) will have more impact on selling price than anything else.

A. Due diligence is a systematic process for acquiring and analyzing information to help a buyer or seller to determine whether or not to proceed with a proposed business transaction. The information obtained relates to all aspects of the business to be purchased. Due diligence should include both quantitative information, such as sales and other financial data, and qualitative information, such as an assessment of the existing management, internal systems, existing licenses, location and other matters. Sometimes the information to be reviewed can be quite technical or industry specific. It is important that the person doing due diligence have a complete understanding of the information being reviewed.

A. In most cases, a portion of the total consideration paid for a business is paid in some sort of deferred payment - whether in the form of a seller note or payments contingent on the performance of the business. Third party lenders are also available to make acquisition loans. Therefore, a cash investment of 1/3 to 1/2 of the purchase price may be sufficient to complete a transaction, depending upon the ability to finance the transaction.

A. In most cases, a portion of the total consideration paid for a business is paid in some sort of deferred payment - whether in the form of a seller note or payments contingent on the performance of the business. Third party lenders are also available to make acquisition loans. Therefore, a cash investment of 1/3 to 1/2 of the purchase price may be sufficient to complete a transaction, depending upon the ability to finance the transaction.

A. There are a variety of sources available for purchase financing. These range from a typical commercial lending source to asset-based lenders and seller financing. The availability of outside financing will depend upon the asset base of the business, its operating history, collateral availability and projected cash flow - the same issues considered in all business lending. Seller financing is also an option. In this case, the seller of the business takes back a promissory note for part of the value of the company. Seller financing may be a good indication of the seller's faith in the continuing operations of the business.