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Buying an existing company can put a neophyte business-type on the fast track to success. Those who opt for secondhand entrepreneurship generally have greater success than those who start a company from scratch. The greatest advantage to buying an existing business is that there is far less risk involved, since any company you’re seriously considering should have proven its ability to attract customers and compete in the marketplace. That track record also makes the purchase more appealing to banks and other investors.
But, there is a downside. The buying process can be a long and winding road. And because the prospect of owning an established business is so exhilarating, many entrepreneurs miss warning signals and stop signs along the way. It’s very easy to forget that once you sign on that dotted line, you’ve bought not only the company’s success, but its failures as well. “You become burdened with the company’s past,” says Chicago investment banker Chester Gougis of Duff & Phelps. “That’s why it’s important to do your homework.”
Preparation is the key to a successful acquisition. You must analyze your strengths and skills, find good advisors, develop a strong business plan and do “due diligence” in evaluating a company’s business and financial history to make your enterprise shopping excursion a successful buy.
MAP OUT YOUR COURSE
Take a good look at yourself, advises Carlos Sandoval, an acquisitions attorney in Waldorf, Maryland. “Before you begin your search, make an honest appraisal of what you bring to the table: Is it other business relationships that will bring in new business? Is it a new way of doing business in a stale market? Do you have a way to use current technology to exploit another market?”
Horace McClerklin, an Alexandria, Virginia-based attorney who specializes in corporate and business law, also believes this is the time you should decide whether you’re the best person–based on your skills–to run a company. “I sometimes have the unenviable task of looking my clients in the eye and saying, ‘One of the biggest problems with your company is you have the wrong person running it.'”
If you’re considering an established company, it may be tempting to learn a new industry. But first-time entrepreneurs should stick to their areas of expertise. You should have a thorough understanding of your market. Know not only who your competition would be, but how and where you would go to get clients.
“The only way someone’s going to back you in a business, whether it be a bank or a private investor, is if you demonstrate you have some knowledge about the business that will allow you to succeed,” says Gougis. If, however, you are determined to do something new, he suggests taking a job in that industry before going into business to show at least limited experience.
BEGINNING YOUR SEARCH
The opportunity to buy a business can present itself in a number of ways, from word-of-mouth to the World Wide Web. If you’re unsure where to look for potential acquisitions or how to negotiate a deal, you may