When you buy a business, you take over an operation that's already generating cash flow and profits. You have an established customer base, reputation and employees who are familiar with all aspects of the business. And you don't have to reinvent the wheel--setting up new procedures, systems and policies--since a successful formula for running the business has already been put in place.

There are times when buying  a business is initially more costly than starting from scratch,  However, it's easier to get financing to buy an existing business than to start a new one. Bankers and investors generally feel more comfortable dealing with a business that already has a proven track record. In addition, buying a business may give you valuable legal rights, such as patents or copyrights, which can prove very profitable. Of course, there's no such thing as a sure thing--and buying an existing business is no exception. If you're not careful, you could get stuck with obsolete inventory, uncooperative employees or outdated distribution methods. To make sure you get the best deal when buying an existing business, be sure to follow these steps.

The best place to start is by looking at an industry with which you're both familiar and which you understand. Think long and hard about the types of businesses you're interested in and which best match your skills and experience. Also consider the size of business you are looking for, in terms of employees, number of locations and sales. Next, pinpoint the geographical area where you want to own a business.

....including wages and taxes, to make sure they're acceptable to you. Once you've chosen a region and an industry to focus on, investigate every business in the area that meets your requirements. Start by looking in the local newspaper's classified section under "Business Opportunities" or "Businesses for Sale". You can also run your own "Want to Buy" ad describing what you are looking for. Remember, just because a business isn't listed doesn't mean it isn't for sale. Talk to business owners in the industry; many of them might not have their businesses up for sale but would consider selling if you made them an offer. Put your networking abilities and business contacts to use, and you're likely to hear of other businesses that might be good prospects.

Contacting a business broker is another way to find businesses for sale. Most brokers are hired by sellers to find buyers and help negotiate deals. If you hire a broker, he or she will charge you a commission--typically 5 to 10 percent of the purchase price. The assistance brokers can offer, especially for first-time buyers, is often worth the cost. However, if you are really trying to save money, consider hiring a broker only when you are near the final negotiating phase. Brokers can offer assistance in several ways.

Prescreening businesses for you. Good brokers turn down many of the businesses they are asked to sell, whether because the seller won't provide full financial disclosures or because the business is overpriced. Going through a broker helps you avoid these bad risks. Helping you pinpoint your interest. A good broker starts by finding out about your skills and interests, then helps you select the right business for you. With the help of a broker, you may discover that an industry you had never considered is the ideal one for you. Negotiating.

They help both parties stay focused on the ultimate goal and smooth over any problems that may arise. Assisting with paperwork. Brokers know the latest laws and regulations affecting everything from licenses and permits to financing and escrow. They also know the most efficient ways to cut through redtape, which can slash months off the purchase process. Working with a broker reduces the risk that you'll neglect some crucial form, fee or step in the process.

Whether you use a broker or go it alone, you will definitely want to put together an "acquisition team"--your banker, accountant and attorney--to help you. These advisors are essential to what is called "due diligence", which means reviewing and verifying all the relevant information about the business you are considering. When due diligence is done, you will know just what you are buying and from whom. The preliminary analysis starts with some basic questions. Why is this business for sale? What is the general perception of the industry and the particular business, and what is the outlook for the future? Does--or can--the business control enough market share to stay profitable? Are raw materials needed in abundant supply? How have the company's product or service lines changed over time?You also need to assess the company's reputation and the strength of its business relationships. Talk to existing customers, suppliers and vendors about their relationships with the business.

Contact the Better Business Bureau, industry associations and licensing and credit-reporting agencies to make sure there are no complaints against the business.If the business still looks promising after your preliminary analysis, your acquisition team should start examining the business's potential returns and its asking price. Whatever method you use to determine the fair market price of the business, your assessment of the business's value should take into account such issues as the business's financial health, its earnings history and its growth potential, as well as its intangible assets (for example, brand name and market position).

To get an idea of the company's anticipated returns and future financial needs, ask the business owner and/or accountants to show you projected financial statements. Balance sheets, income statements, cash flow statements, footnotes and tax returns for the past three years are all key indicators of a business's health. These documents will help you conduct a financial analysis that will spotlight any underlying problems and also provide a closer look at a wide range of less tangible information.

Before you start calling/contacting small business brokers, owner/sellers, and agents make sure you know what types, sizes, and locations of businesses you are looking to buy.  If you seem uncertain about your search criteria, brokers and agents will not spend a lot of time with you. There are many more buyers than sellers on the market and brokers/agents and owner/sellers like to work with buyers, who are serious, motivated, and know what they are looking for. Have available and send/fax/email to potential sellers and brokers/agents an Acquisition Criteria sheet that goes over your current search criteria - it pays off and shows you're serious.

Money for a down payment or purchase can come from many different sources. They are: cash on hand in savings, pulling equity out of your home, your retirement funds, SBA loans, seller financing/note. Knowing where and what you are willing to do upfront will save you a lot of time in the search process. You definitely want to get pre-approved/reviewed for SBA loan and other financing options before you write any offers - you need to know what your financing opportunities are early in the process of buying.

Remember - Time Kills Deals. Make sure when you are negotiating the contract, allocation of purchase price, new or restructured lease, etc. always be moving forward. Don't let any situation sit too long - it will most likely kill the deal.

You will be utilizing many professionals to buy a business. Make sure you have a CPA or Due Diligence Consultant to help you look at the financials and paperwork of the business to make sure it is in order. You will also possible need financing (a loan for the purchase), escrow services, an attorney to review contracts and possible other services to assist you in the buying of your business.

A majority of business buyers are too timid when buying a business and are not willing to "pull the trigger" and sign a purchase agreement to start the process of buying a business. Many serious buyers lose out on great deals because they are too analytical or pensive about writing up an offer. Writing up an offer also usually "locks out" other potential buyers (your competition) for a period of time so you can take a look at important business records and info. After signing the purchase agreement there will be a Due Diligence period with contingencies that will have to be met before the deal is closed. If those contingencies are not met or the books and records are not exactly as represented you are in most instances able to pull out of the deal and go on searching for other businesses - make sure you have all contracts/agreements reviewed by an attorney before signing.

Get the signed purchase agreement into escrow immediately and sign off any contingencies as they are removed- remember TIME KILLS DEALS. Make sure you go through the Allocation of Purchase Price in the beginning of the escrow process not at the end which happens most of the time. By getting into the escrow process usually takes the deal out of play and out of reach for other potential buyers.

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