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Starting a small business: Or buying a business? 

The starting a small business or buying an existing business decision: 

Whether you should be starting a small business from the ground up or buying an existing business is another fundamental decision that needs to be made in structuring your new business. Whether you're starting a small business or buying an existing business, it will still be new to you and you will still need to maintain the prior success and improve upon it.  It will still be very important for you to do your research and find out how well the business is doing and what its reputation is in the community and in the industry in which it is involved.  

In making this final decision between starting a small business or buying an existing business, you will want to consider every aspect of the business you're anticipating purchasing.  You should never buy an existing business without doing what's known as due diligence. This means working with an accountant and attorney in making a thorough examination of the businesses health and finances, much is like having a mechanic check a used-car before purchasing it.  The purpose of due diligence is for you to have a better understanding of the nature of the small business and its financial situation prior to its purchase. Before buying a business you should always consider the following things as well as many others: 

• Find out if there any outstanding judgments for which you may be liable.
• Review the books carefully with your attorney.
• Review the profit and loss statements.
• Determine why the business is being sold.
• Determine what you can do to improve upon the current status of the business.

For example, if you are purchasing a radio station would want to consider the personnel involved, sponsors, listenership, the licensing situation and whether they have been cited by the FCC for any problems. You would want to know what the bottom-line sales numbers are and determine whether the station is profitable, and if not, whether you have the possibility of turning it around. When buying a small business, many people look at the past financial history, but do not analyze well what the potential is for the future.  You will use the past successes and failures as indicators of what the future holds, but also consider that what has been "hot" in the past, will not necessarily be "hot" in the future.

Part of making the decision between starting a small business and buying an existing business requires you to investigate the structure of the business, whether it is the physical foundation of the store or the technical team behind a web site.  You need to  know if there any leaks in the ceilings or viruses on the hard drive.  If there is merchandise involved, you need to know its value, and ability to be sold in the future.  If you're buying in inventory or even a mailing list make sure it's current.  If you're buying a storefront or manufacturing business you're not only buying the business, but the location and the neighborhood that comes with it.  Just like buying a house, buying an existing small business means buying the neighborhood that comes right along with it. 

In deciding whether starting a small business or buying a specific existing business is the best option, you also want to gather information on the background of the previous owner and find out why he/she is selling.  Sometimes current owners have simply taken the small businesses as far as it will go.  They may want to cut their losses, enjoy their retirement money or move onto a new venture.  For the small business buyer, there are several advantages to buying an existing business including name recognition, existing customers and an establish presence in the industry, the community or both.  As a new owner, you may start off with existing vendor relationships, inventory, and/or a staff of knowledgeable employees who are familiar with the way the business has been run. 

Of course, buying a business may come at a hefty price.  You must review the financial records to determine if you're paying too much for this opportunity.  You'll need to know how you can improve the business in order to decide whether it is a good small business opportunity.  Consider how long it will take to get a good return on your investment. 

When you're done and you decided that you can make a go of the new small business, you need to analyze everything that is right, and everything that needs to be improved.  Make necessary changes, but not sweeping changes.  Remember that you need to have regular clients at the beginning without scaring them off.  You need to have an understanding of what they like about the business, and you should maintain those aspects of the small business without major changes.  You should then consider the shortcomings and gradually make the changes necessary for success. 

Information from Everything: Start Your Own Business Book by Rich Mintzer 

Web page and Starting Your Own business Course by Paul Susic Licensed Psychologist Ph.D. Candidate  CEO/President Susic Psychological Consulting P.C.