To Buy or Not to Buy, That is the Question

In a world of budgeting, saving and a credit crises, the majority of the public does to have access to infinite resources to purchase a largely successful conglomerate. While everyone does not necessarily have the opportunity to buy a business with a proven track record of profitability, everyone does have the opportunity to create a venture of their own.Think about it for a moment. You have decided that you would like to own a certain type of business. You are ready to unleash your passion, do you buy a form of that businesses with proven profitability or do you create your own path and launch a start-up? The choice is really yours or I guess I should say your budget's.

Operating Business
A business that is already in operation has overcame the original obstacles of start up. It has an established customer base, location, inventory and suppliers, and trained employees on staff. These benefits leave room for you to purchase the business and make the necessary updates without starting from scratch. Statistically this proves to be a better idea than launching a venture of your own, but the industry average for successfully complete ting a business purchase from "putting in an offer that is accepted and that offer going to the closing table is 50%" (Sierchio). Buyers must be well prepared/informed and ready to discover discrepancies in the sellers information. You must find out exactly why the business is for sale and ensure that this is a problem that you can fix. Poor management and lack of training are fixable, but a poor location may be a little bit more difficult.

Business Start-up
For many entrepreneurs purchasing a business that is all ready in operation is out of their budgetary means, myself included. These entrepreneurs decide to unleash their passion and launch their own business. Statistics are no longer on your side, but drive very well may be. These entrepreneurs must find an affordable location for their business, search for vendors, advertise, hire employees and begin the process of building a client base. Everything that comes with the purchase of a profitable business, you must now create on your own. These objectives alone can cost a small fortune, thus do not underestimate during the formation of your business plan. You are going to need all of the funding you can get and you are still going to have to think very "guerrilla minded". According to essortment, "When you open a business from the ground floor, you make the rules and you decided how you want it to run. Your business is designed completely by you." I find this extremely motivating, it speaks directly to my entrepreneurial drive.

Two Ways to Buy
You have chosen to buy a business that is already in operation. Way to go moneybags! There are two basic methods to purchasing a business, the acquisition of stock or through the purchase of the assets. Stock acquisitions involve either a direct stock purchase or a merger. This method may reveal previously unknown contingent liabilities that you will be responsible for after purchase. The purchase of assets both tangible and intangible on the other hand proves to be a tax advantage for you the buyer. Not only can you opt to purchase only the assets that you feel are necessary for the successful operation of the business, you may also reduce your company taxes through the mark up and depreciation of tangible assets. While this method is not nearly as appealing for the seller it is a clear advantage for you the buyer.

Goodwill
Many businesses come with an implied "goodwill" concept. For example the trademark associated with certain franchises will come with an implied "goodwill" towards the brand. The concept may be transferred to the buyer during the initial stages of operation, but it is the responsibility of the new owner to maintain the "goodwill" within the business. You may choose to purchase a business that has a proven client base and a track record of profitability, but if you provide poor customer service and an inferior product you are tainting the "goodwill" of the business. The seller can not be held liable for your indiscretions as the new owner of this business. The concept technically/contractually can not be transferred or purchased.

Click Here to view George Sierchio's article on Buy-a-Business.

Gaeblers Resources for Entrepreneurs also has a great article on the Ways to Buy a Business. Click Here to view the article.