Many prospective entrepreneurs choose to purchase existing businesses instead of starting their own companies from the ground up. There are many benefits to buying a business that has already made it through the startup phase of operations, but there are also a number of risks associated with purchasing an existing company. If you’re interested in purchasing a business that is already running, you should consider number of important factors before making your final decision.

Why is the Owner Selling?
If you’re thinking about buying a business that has been up and running for a while, the first question you need to address is finding out the reasons the owner is selling the company. Don’t rely solely on the owner’s explanation. After all, if the owner wants or needs to sell the business, it’s in his or her best interest to paint as rosy of a picture as possible. Many people choose to sell their companies because they are ready to retire or they want to move on to a new challenge. However, others may choose to sell their businesses because they are  not able to turn a profit or even meet their operating expenses.

Enlist the Expertise of a Valuation Specialist
Before you invest a significant amount of money into purchasing a business, you need to have a clear picture of the organization’s financial status. The worst thing you can do is base your beliefs about how sound a company’s finances are based on the owners word combined with a cursory glance through the bookkeeping system. Many factors impact the financial worth of a business, and it takes very specialized knowledge to be able to value companies for purchase.

Before you sign any type of purchase agreement, it is in your best interest to bring in a business valuation specialist to help you develop a complete understanding of just how much the operation is worth. Ask your accountant if he or she is a certified valuation specialist. If he or she doesn’t have an expertise in assigning value to businesses, ask for a referral to someone who does. If necessary, contact your state’s Board of Public Accountancy for referral to someone who has the expertise you need.

Place Limitations on Future Competition
It’s very common for individuals who purchase businesses to insist on executing a non-compete agreement as part of the purchase transaction. Requiring the seller to enter into such an agreement prevents him or her from opening a business that will compete with the one you are purchasing for a certain period of time and/or within a specific geographic area. If you’re purchasing a business, you certainly don’t want to find yourself competing with the person who sold you the company a few months into operating your new venture.