Buying an Existing Business Essay

4440 Words Mar 26th, 2014 18 Pages
Chapter 7 Buying an Existing Business

Part 1: Learning Objectives

1. Understand the advantages and disadvantages of buying an existing business.

2. Define the steps involved in the right way to buy a business.

3. Explain the process of evaluating an existing business.

4. Describe the various techniques for determining the value of a business.

5. Understand the seller's side of the buyout decision and how to structure the deal.

6. Understand how the negotiation process works and identify the factors that affect the negotiation process.

Part 2: Class Instruction
Introduction
Some entrepreneurs choose to buy existing businesses rather than start their own. In a typical year, between 500,000
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• Inventory is in place and trade credit is established. • The new business owner hits the ground running. • The new owner can use the experience of the previous owner. • Easier financing. • It's a bargain (maybe?). Disadvantages of buying an existing business include: • It's a loser (maybe?). • The previous owner may have created ill will. • The business location may have become/is unsatisfactory. • Equipment and facilities may be obsolete or inefficient. • Change and innovation are difficult to implement. • Inventory may be outdated or obsolete. • Accounts receivable may be worth less than face value. Figure 7.1 • Changes may be difficult to implement. • Inventory may be stale. • Accounts payable may be worth more than face value. • The business may be overpriced.

Steps in Acquiring a Business LO 2

More than half of business acquisitions fail to meet the buyers’ expectations. The correct way to evaluate a match is to:

• Analyze your skills, abilities.

• Develop a list of criteria

• Prepare a list of potential candidates.

• Investigate and evaluate candidate businesses and evaluate the best one.

• Explore financing options—the seller is a potential source.

• Negotiate a reasonable deal with the owner

• Ensure a

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