Buying an existing business – What you need to know

buying an existing business | Julian Gooden

You probably do not want to go through the process of starting a business from scratch, and therefore, might consider buying an existing business. This could be a good idea since an established business should already have built in customers, is hopefully profitable and thus likely to be less risky. However, that is not always the situation and bad purchases are often made. In order to increase the chances of making the right decision, please consider the following:

Type of business

When buying a business it is not wise to go into an area you know absolutely nothing about, think of your qualification, experience, hobbies and interests.

Do you have the money to purchase this business? If not, how will you finance this venture? Look at small business schemes – what kind of finances, if any are being offered? Also, is the owner willing to be paid in instalments, how will this be done, can you make these payments?

Financial statements
You want to look at the company’s detailed financial statements, over several years, preferably at least five (5) years. Match what is reflected on the statement with what is happening in the industry. Has the business been making a profit, if so, over what period of time? Look at the taxes paid and compare them with income reflected.


A company’s payables history can tell a story. A company that is really viable is able to pay its current liabilities as they fall due. Look at how long the company takes to pay its suppliers or other short-term creditors. Thirty-to-sixty (30-60) days are acceptable, but ninety (90) days and over are too long a period, this business could be struggling.

Do a credit check on the company’s major debtors. How long are their receivables outstanding for? Also, bare in mind that for the purpose of the sale the receivables figures might be inflated, check invoices. You will want to determine how likely it is that some receivables may become ‘bad debts’ (unrecoverable).

Look at current employees, how critical are they to the business’ success? Are there employees that are more liabilities than assets? Which employees will you need to keep, which do you let go? Take into consideration their overall performance and what customers think of these persons.

Is there a close relationship with the current owner and customers? Will they leave or stay if you take over?

How does this business stock up against the competition? What has been happening in the industry, is it growing? Have sales fallen, if so, why? Have competitors been leaving the industry? If so, why?

Corporate Image
Does this company have a good corporate image? Is there potential to improve the image? You do not want a company that is riddled with scandal or that people in general have negative views towards as this will undoubtedly affect future growth.

Trade secrets
Does this company have trade secrets, are such secrets protected? How are they protected?

Ask questions
When you meet with the seller ask questions and make sure you are satisfied with the answers given. Always ensure that your doubts are addressed and NEVER push them aside.

Where is the business located, is it a good strategic point? Sometimes location may not be important, but depending on the type of business you intend to operate, location could be critical.

Evaluate the seller

Would this person ordinarily be someone you would do business with? Do a credit check on the person.

Have there been any lawsuits filed against the business, if so what were the outcome? Are there any pending? You don’t want to walk into a liability.

Taxes and expenses

Check to make sure that taxes and other major expenses are paid and are not left for you to undertake. A prudent business will ensure that its taxes and important expenses are paid when due such as sales, corporate income and property taxes.

You could add more checks as you go along but these would uncover a lot of important information. If you are unable to soundly analyse the information, enlist the help of an experienced accountant or businessperson who could assist you in understanding what is happening.

Also, it is advisable to always seek the services of a lawyer before undertaking such a venture.


Sources of Business Ideas

When we decide to start a business or look at self-employed income options, we are often left wondering what to do. Business ideas however can be easy to come by. Many people start a business in an area of interest, such as writing or bookkeeping. The possibilities are however endless and they can come from many different sources. If you are currently thinking of starting your own business, but are not sure what business you want to start, then maybe reading this article could help you on your way. Below are some sources of business ideas:

Present / Previous Employment

A large number of small businesses are inspired by present or previous jobs. If you were great at your job, it could be a good idea to start your business in this field, as you would bring experience and know-how to your new business.


What is it that you like to do? Often we are prepared to put a lot of time, effort and money into a hobby, why not consider making money from it? Many writers, for example, first started writing as a hobby.

Niche Markets

Sometimes small pockets of a market are not being satisfied by the general market; make an observation, do your research – Is there a need you could fill?

Personal Observation

Look around you, is there a need in your community that is not being satisfied or maybe the need is in a neighbouring community?Business Ideas


Many products are derived from the waste of other products, for example, using scraps of materials to make colourful rugs for children or using coconut trash to make coconut cakes. Sometimes businesses dispose of things that could be used to make other products or charge a minimal fee for the waste.

Is There a Product on the Market That Needs Improvement?

You are a consumer, there might be products that you think could do with more or less of particular ingredient, if you think you could do a better job, and can source the necessary assistance…well make a start.

Distribute Someone Else’s Products

You do not have to create your own product, why not market or distribute someone else’s product for a percentage of sales?


Find market overseas for locally produced goods; research could prove integral to starting. Perhaps you have travelled to other countries and have noticed a lack in certain areas of the overseas market. Get information from the relevant authorities on how to proceed.

Buy Downtown, Resell Uptown

You will be surprised at the vast differences in prices for similar products in these two markets, other people capitalise on the price differences, why not you!

Business, Magazines, Newspapers, Trade Magazines and Newsletter

These are also good sources of ideas.

Government Agencies

There are certain government bodies that can provide information about gaps in the market, make use of them.


If you have the cash and do not mind giving up some control (much control in some instances, depending on the business) this could be an option for you. There are many franchise businesses out there, check them out, and see if any suit your interest or your pocket.

Brainstorming - business ideas


Gather a group of family and friends, use this group to suggest and evaluate business ideas.

Current Market

Check market trends and see what’s happening. Which products are being sold quickly in the market at the moment?

Look at Importations

Are there products being imported that you could produce at the local level? If particular products are being imported on a consistent basis, this is an indication that there is definitely a market that is not being adequately provided for by local producers. Many people are willing to support local producers even at the expense of paying a bit more for the product.

Supplying Raw Material

Larger businesses sometimes depend heavily on small firms to supply raw materials. For example, larger firms in the canning industry depend on small farmers who produce fruits and vegetables. Find out if there is a market for raw materials that you could fill.

Invent a Business

Many of life’s pleasures were born from simple ideas. If you have an idea that could prove beneficial, do not just push it aside because it is new; entrepreneurship is about innovation.

Business ideas

Buy an Existing Business

Many business owners start by buying an existing business. If you know of viable businesses being sold and are able to make a purchase, consider the possibility of owning one.

Specialised Products

– Some goods and services are too specialized for large firms and work better for small businesses. Find out more about these.