If you are thinking about purchasing an existing business, here are some things you should know before you start:

For some people, buying an existing business is a better choice than starting from scratch. That is because someone else has done much of the legwork for you, such as establishing a customer base, hiring employees, and negotiating a lease. However, if you want to buy a business, you will need to do some detailed research to make sure that what you see is what you are going to get.

Finding a Business to Buy

Consider starting your search close to home. Ask business associates and friends for leads on businesses that may be on the market. Many of the best business opportunities surface by word of mouth -- and are snapped up before their owners ever list them for sale.

Other avenues to explore include newspaper ads, trade associations, real estate brokers, and business suppliers. Finally, there are business brokers -- people who earn a commission from business owners who need help finding buyers. It is fine to use a broker to help locate a business opportunity, but it is unwise to rely on a broker -- who does not make a commission unless he makes a sale -- for advice about the quality of a business or the fairness of its selling price.

Research the Business's History and Finances

Before you consider buying a business, find out as much as you can about it: carefully review copies of the business's certified financial records, including cash flow statements, balance sheets, accounts payable and receivable, employee files, including benefits and any employee contracts, and major contracts and leases, as well as any past lawsuits and other pertinent information.

This review, which lawyers call it "due diligence", will tell you a lot about the company you are buying and will alert you to any possible problems. For example, if a major contract does not allow the current owner to assign it to you without the other party's permission; you should enlist the owner to help you obtain the other party's consent.

Do not be reluctant about asking for information about the business. Here are some other details you should determine before you commit yourself to buying a business:

1. who holds title to company assets
2. whether there is any possible or ongoing litigation
3. whether there have been any workers' compensation claims or unemployment claims made by company employees
4. whether the company has regularly paid its taxes, and any potential tax liabilities
5. whether any commercial leases and major contracts can be assigned to the new owner
6. whether the company has given any warranties and guarantees to its customers
7. whether the company owns trade secrets, and how it protects them
8. whether the company owns patents and copyrights
9. whether the company holds registered trademarks
10. whether business licenses or tax registration certificates are transferable
11. whether the business is in compliance with local zoning laws
12. whether there are any toxic waste or environmental problems, and if the business is a franchise, what it will take to get the necessary franchisor approval.

This is not an complete list; you should also review any business records that will provide you with information to help you decide whether the business is a prudent purchase. If the seller refuses to supply any of this information, or if you find any misrepresentation, this may be a sign that you should look elsewhere.

Closing the Deal

If you have scrupulously investigated a company and wish to go ahead with a purchase, there are a few more steps you will have to take. First, you and the owner will have to agree on a fair purchase price. A good way to do this is to hire an experienced appraiser who can estimate the company's fair market value. Next, you and the business owner will agree on which assets you will buy and the terms of payment -- most often, businesses are purchased on an installment plan with a sizable down payment.

After you have outlined the terms on which you and the seller agree, you will need to create a written sales agreement and possibly have a lawyer review it before you sign on the dotted line.