What are some advantages of buying a business?

The biggest advantage of buying a business is that you have an immediate cash flow - if you are buying the right kind of business. If you and your CPA and attorney have done a complete and diligent survey prior to the purchase of the business to make sure that the numbers as representing to the perspective buyer are actually true numbers and correct. The main advantage is you are buying an existing income stream from day one as supposed to starting your own business where you may not have an income stream for days, weeks, or months that can sustain your standard of living and your lifestyle for your family and yourself.

It's also much easier to get an SBA loan for the purchase of a business versus a start-up business because with the profit and loss statements that are available the bank can see what has happened in the past and evaluate the perspective purchaser of the business as to whether he can operate that business successfully.

The disadvantage of buying a business is that you are going to pay more for buying the business rather than starting one. In most cases buying a small business will cost more than starting one up from scratch.

What information should the seller provide you about a business you are considering buying?

The seller should provide you with at least three years of profit and loss statements, balance sheets, tax returns, a complete equipment list of furniture and fixtures that are included in the sale, aging of the accounts receivable, and a copy of the lease, which must have in it the right to have that lease signed. If there is no sign ability of the present lease then you must have the right to go to the landlord and negotiate a new lease. In my opinion, with very few exceptions, you should never buy the stock of a co-op. You should only buy assets and if necessary assume some of the liabilities of the existing cooperation and then form your own cooperation for LOC. If you buy the stock of an existing business you are forever liable to the IRS. So you want to only make an asset purchase that could include the assumption of some liabilities. In many cases and wherever possible you want to make the seller the banker. In today's market that's not difficult because the seller can get a lien on the business and he can get 7% interest or somewhere around there for the unpaid portion of the business after the down payment.