One way to start a business is by buying an existing one. Your local baker may be thinking of retirement and want to sell his business; or you’ve heard about a business being sold that you think presents a very good opportunity.

However, before you get your checkbook and buy that business, it is important to determine if that business is worth buying. Like buying cars, you don’t want to put your hard-earned money into a lemon. Here are some questions you need to ask:

• What is the legal structure of the business (is it a sole proprietorship, partnership or corporation)?
• Are you dealing with the right person? If the business is a 1-person business, and you are dealing with that person, then you’re on the right path. If you are dealing with multiple owners or corporation, is the person you are dealing with authorized to sell the business and deal with you? You don’t want a situation where you have spent time and resources evaluating the deal when the real owners do not want to sell.
• What are the reasons for selling? The owner/s may or may not be honest with you so you may need to do your own investigation. If the reasons for selling have more to do with the owner wanting a change of pace because they are tired, old or just want a totally different lifestyle, then you have little to be concerned about. But if the reasons have anything to do with diminishing demand for the business, significant threats to the business (e.g. Wal-mart is moving to the neighborhood), or the business is starting to fail, then you need to be aware of all these pitfalls. Get expert advice from accountants and lawyers, and research the business inside and out.
• How is the business doing? Check the books of the business to learn whether it is profitable or not. If you need help, seek the expert opinion of a financial manager or accountant to help you interpret the numbers. Note though that the owner/s may not grant you access to the tax and financial information of the business unless they have reason to believe that you are serious with the purchase.
• If this is a brick and mortar business, how is the location? Location is everything — you don’t want a beauty salon to be located in an industrial area with hardly any foot traffic. Assess the location of the business, and whether you think the location is optimal. Check the lease as you don’t want the surprise of being evicted from the property the moment you takeover the business. If it is a web business, check the domain name and when it is up for renewal.
• Are the assets up to par? The last thing you want is to buy a business whose equipment are falling apart and in dire need to upgrade. Ascertain that the business follows all the requirements of the city/county particularly in terms of building codes.
• How are the employees? If the business has employees, it is important to tread carefully in this regard. Are they expecting the sale of the business? How are the employees in terms of productivity? More importantly, how do they view the sale? It is important to ensure that you get the employees’ cooperation early on.
• How is the competition? What is the market share of the business? Who are its competitors and how are they doing? And how is the business doing relative to its competitors? Are the competitors thriving while this business is struggling?
• Who are the suppliers and what is the business’ relationship with the suppliers? Are the suppliers reliable? Are their prices competitive or are there any better vendors for the business? You also want to make sure that the current suppliers will actually do business with you.
• What else will you inherit with the business? Are there contracts you need to honor? Returns you need to be aware of? Or problems that you should know?

If you are planning to buy a business, be prepared to negotiate. And get as much professional help as you can from accountants, lawyers and other experts. For more information, read the article Steps in Buying and Negotiating a Business Purchase