Buying An Existing Business - Iowa State University

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For Sale

Chapter 5: Buying a Business

Copyright 2002 Prentice Hall Publishing Company

1

Key Questions to Consider Before Buying a Business

n Is the right type of business for sale in the market in which you want to operate?

n What experience do you have in this particular business and the industry in which it operates?

n How critical is experience in the business to your ultimate success?

n What price and payment method are reasonable for you and acceptable to the seller?

Chapter 5: Buying a Business

Copyright 2002 Prentice Hall Publishing Company

2

Key Questions to Consider Before Buying a Business

(continued)

n Should you start the business and build it from the ground up rather than buy an existing one?

n What is the company's potential for success? n What changes will you have to make ? and how

extensive will they have to be ? to realize the business's full potential? n Will the company generate sufficient cash flow to pay for itself and leave you with a suitable return on your investment?

Chapter 5: Buying a Business

Copyright 2002 Prentice Hall Publishing Company

3

Advantages of Buying A Business

n It may continue to be successful n It may already have the best location n Employees and suppliers are established n Equipment is already installed n Inventory is in place and trade credit is

established

Chapter 5: Buying a Business

Copyright 2002 Prentice Hall Publishing Company

4

Advantages of Buying A Business

(continued)

n You can "hit the ground running" n You can use the previous owner's

experience n Easier financing n It's a bargain

Chapter 5: Buying a Business

Copyright 2002 Prentice Hall Publishing Company

5

Disadvantages of Buying A Business

n "It's a loser" n Previous owner may have created ill

will n "Inherited" employees may be

unsuitable n Location may have become

unsatisfactory n Equipment may be obsolete

Chapter 5: Buying a Business

Copyright 2002 Prentice Hall Publishing Company

6

Disadvantages of Buying A Business

(continued)

n Changes can be difficult to implement n Inventory may be stale n Accounts receivable may be worth less

than face value n It may be overpriced

Chapter 5: Buying a Business

Copyright 2002 Prentice Hall Publishing Company

7

Acquiring a Business

n Analyze your skills, abilities, and interest. n Prepare a list of potential candidates

(Remember the "hidden market.") n Investigate and evaluate candidate

businesses and select the best one. n Explore financing options. n Ensure a smooth transition.

Kwik-Mart

Chapter 5: Buying a Business

Copyright 2002 Prentice Hall Publishing Company

8

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