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Buying an Existing Business

Buying an existing business is indeed a dangerous thing. The chances of finding a truly promising business for sale are small. Most such businesses are never sold, or, if they are sold, are kept in the family. Justifications for selling a business like “owner retiring” or “illness in the family” are often excuses to get rid of an unprofitable business. Business information is very easily distorted. You should always verify information received through business information agencies and conduct further financial analysis before making the purchase.

Protect Yourself. When investigating a business opportunity of any kind, you should follow two basic rules of thumb. The first is to do very rigorous financial analysis of the potential opportunity. Compare the investment required to buy the business to the investment required to start a business from scratch. In most cases you’d do better starting your own business. Remember, there is an “opportunity cost” to money, the amount you could have made if you had invested it elsewhere.

Be Skeptical. The second rule is that there is no such thing as a business opportunity “too good to pass up.” In America, there will always be another opportunity. If someone tries to sell you something by telling you the opportunity will be limited, see this as the sales technique it is. Think carefully. Don’t let anyone else do your thinking for you.

How it Works Best. Buying an existing business can work for an aggressive entrepreneur who has some expertise in turning around failing businesses. There are sophisticated techniques for “finding” assets in businesses in trouble and then turning them around. In general, though, buying a business is the solution only for someone who wants a steady income but not much more. The real entrepreneur, unless he or she has the special skills to turn around a troubled business, would do much better starting a new business.

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