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Established Business: A Good Opportunity to Opt

Acquiring an established business is a difficult task but a good opportunity. Let's take a look what are the pros and cons for the same and what a buyer should look before making the transaction into a reality.
BY Akshay Arora
Feature Writer, BusinessEx
Jul 25,2017

Starting your own business is surely a difficult task as it requires a lot of work, investment, determination and needs to build up from scratch but if you are investing in an existing business then it will be fruitful for your future as an entrepreneur for sure.

It is a general belief that if an entrepreneur is selling its business then there is something wrong with it or maybe business suffering from financial crisis and unable to generate necessary revenues. But this is just a vague expression as there are myriad reasons why an entrepreneur wants to sell its business. Maybe the entrepreneur lose interest with the industry its current business running in, or maybe the business functioning is not matching up with his lifestyle, or an entrepreneur just want to switch industry or unable to handle two or more businesses together.

Finding an established business is a difficult task but now with the introduction of BusinessEx.com, which is a networking platform and has made it simpler for investors to find an established business of their choice in diversified industries.

What are the merits and demerits of buying an established business?

Merits of buying an established business are:-

  • The difficult task of start-up work is already done. The business model is already in place with proper plans and procedure.
  • A proper well managed experienced team will be there for your business operations.
  • You can easily secure loans and attract investments as you will have a report of financial history and performance of the business.
  • Immediate cash flow opportunity by buying an established business.
  • You will acquire existing customers, contacts, goodwill, suppliers, staff, plant, equipment and stock.
  • A market for your product or service is already established.

Demerits of buying an established business are:-

  • Maybe business has bad management or staff with low morale and may need improvements to old plant and machinery.
  • Maybe the relationship with suppliers, clients etc may not be on good terms, so it is necessary to clarify before initial purchase.
  • Maybe competition rising up or a declining industry can affect future growth of the business.
  • It is a possibility that previous owner may have take loans and have bad debts that need to be set off and just wanted to transfer the burden on someone else head.
  • Payment for purchase needs to be made upfront and the amount is quite large, so risk does exist.

What to look for while acquiring an established business?

There are so many things to look before closing the deal to acquire an established business. Lets take a look at some of them:-

  1. Must review tax return sheet of the business of past 3-5 years in order to determine the profitability of the business as well as any outstanding tax liability.
  2. Check the financial statements for overdue debts and business financial position before finalising the deal.
  3. Find out whether the business premises is on lease or not. If yes, then you must confirm how much time remains before the end of the lease term and whether the landlord let you on the lease without any rise in the rate of rent. Also check for the security deposit, if any and get all the documentation done properly for a new lease agreement with your name and approval.
  4. Dont forget to comply with bulk sale laws, which govern the sale of business inventory.
  5. Make sure to complete IRS Form 8594 (Asset Acquisition Statement), this document will indicate how the purchase was allocated and a number of assets, which are important for your tax return.
  6. Negotiate a letter of Intent which is also called a term sheet, an agreement between buyer and seller containing all the important terms and conditions for sale like purchase price, date of sale, approval signature of both parties etc.
  7. Get an indemnity from the seller regarding with a confirmation that no malpractices used to be done in the name of business so that you dont have to get into trouble for previous owner mistakes.
  8. Make a contact with employees working and review them regarding the functioning and operations of a business and try to find out the history of business to be on a safe side.

Conclusion

Putting up faith in acquiring an established business needs courage but it comes with fruitful returns. Every business has two sides like a coin; it will have some negative factors and some positive ones but in the end, it depends on you, that whether you will be able to manage properly even if the business is in good shape. Established business is a good opportunity to opt for because there is less stress and you will have already a running business that you need to carry forward. If you are looking for an established business opportunity then BusinessEx.com is the right opportunity for you.

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