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Posted: Wednesday, March 1, 2017 1:00 PM

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If you are looking to get into business, buying an existing one is, by far, the quickest, most cost effective, and least risky method available. Finding the right business is hard work, especially if you are trying to look for a business on your own. It is even more difficult if you have no previous business experience. While there are some definite advantages in buying an established business, as compared to starting a new one, it can also be a lot more complicated and may involve many potential pitfalls and traps that you should try to avoid..

If you are going into business for yourself, you have no doubt given at least some consideration to buying an existing business. It is a possibility you should not overlook, since doing so can have some considerable advantages over starting a new business.

The main advantage of buying an existing business is “Instant Cash Flow" in your pocket, something that may take years of starting one from scratch. Another advantage, of course, is that buying an already functioning business gives you a chance to start out with an established customer base, which might otherwise take you several years to create. You will be purchasing existing procedures and practices, vendor relationships, existing markets and distribution networks, trained in-place employees, and a complete turnkey business opportunity. By purchasing an existing business, you can dedicate most of your efforts on maintaining and improving the operations of your acquisition instead of creating a business from the ground up.

It is also possible to have the seller stay on as an employee or consultant during the transitional period, to help familiarize you with the operation of the business. It's like having on-the-job training. You should insist that the seller provide, without cost, at least two weeks of free consultation. Most sellers will comply with your request. Any consultation beyond this two-week period may call for some form of compensation to the seller. Even though you may not need the seller beyond a two-week period, obtain this arrangement in writing before you go to settlement.)

What About Financing a Business for Sale

Buying a business, as opposed to starting one, has advantages - customers, employees, market position and established systems. Therefore more favorable financing terms are available to the buyer of an established business. Seller financing, bank financing and even the financing by vendors (suppliers) is often available.

Along with the buyer, the seller, banker and vendor become partners in the business, sharing some of the risk. Every creditor feels more secure with an established entity and most banks don't finance new start-ups at all. For going businesses, seller financing at below-market rates is common and available without the same security requirements as other arms-length lenders.

A buyer of a going concern often has immediate cash flow. In fact, in most cases, that's what has been carefully protected by the financing partners: the seller, the bank and vendors. These lenders will only agree to participate in transactions that make sense to them. They know they won't get paid unless the cash flow works for the new business owner.

In a new start-up, the vendors will usually still help, but the buyer must fund the start-up for months and sometimes even years until the business gets going. Most start-ups fail, in fact, because they run out of money before they succeed.

Stirling Investment Group can show you many options for financing the purchase of a business. Call us at 302-747-4949

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