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Upon completion of this chapter, you will be able to:
1 Understand the advantages and disadvantages of buying an existing business.
2 List the steps involved in the right way to buy a business.
3 Describe the various methods used in valuing a business. 4 Discuss the process of negotiating the deal.
Buying an Existing Business
Although our intellect always longs for clarity and certainty, our nature often finds uncertainty fascinating.
—Karl von Clausewitz
A pessimist sees the difficulty in every opportunity: an optimist sees the opportunity in every difficulty.
—Winston Churchill
CHAPTER FIVE
Learning
Objectives
1-A. Understand the advantages of buying an existing business.
128 SECTION 2 • BUILDING THE BUSINESS PLAN: BEGINNING CONSIDERATIONS
The entrepreneurial experience always involves risk. One way to minimize the risk of entrepreneurship is to purchase an existing business rather than to create a new venture. Buying an existing business requires a great deal of analysis and evaluation to ensure that what the entrepreneur is purchasing meets his or her needs and expectations. Exercising patience and taking the necessary time to research a business before buying it are essential to getting a good deal. Research conducted by Stanford’s Center for Entrepreneurial Studies reports that the average business purchase takes 19 months from the start of the search to the closing of the deal.1
In too many cases, the excitement of being able to implement a “fast entry” into the market causes an entrepreneur to rush into a deal and make unnecessary mistakes in judgment.
Before buying any business, an entrepreneur must conduct a thorough analysis of the business and the opportunity that it presents. According to Russell Brown, author of Strategies for
Successfully Buying or Selling a Business, “You have access to the company’s earnings

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