If you’re thinking of starting a business, you may be nervous about starting it from scratch. Have you thought of purchasing an existing one? For many people, it makes sense. By purchasing an on-going business, you not only take over their operations and inventory, you also start your business ownership with an existing team of employees and a customer base. And, if you do your homework correctly, you’ll know if those employees and customers are all they’re cracked up to be..

But there are downsides, such as the purchasing cost being more than a startup cost. And there are always hidden problems, like customer debts owed to the business that you may not be able to collect. So before you invest, consider the following items provided by the Small Business Administration. (And remember, never make any major decisions without first consulting your personal legal and financial advisors.)

Take a moment to think

Just because a business was successful under one person, does not mean it will be for you. You need to keep some things in mind when trying to choose the right one for you.

• What are your interests? The easiest way to eliminate possibilities is to figure out what you won’t be interested in doing.
• What are your talents? Be honest about your skills and experience.
• What are your conditions for a business? Will you be restrained by location and/or a time commitment?

Research, research, research

Once you’ve found what you’d like to buy, it’s time to do a thorough, objective investigation. (The pros call this “due diligence.”) This will help determine a fair and equitable price for the sale of the business. It also will allow you, through the help of an attorney and an accountant, to determine the financial and legal condition of the company.

Here are some of the documents you’ll encounter during the research phase of the business purchasing process:

• Letter of Intent. This will spell out the proposed price, the terms of the purchase and the conditions for the sale of the business.
• Confidentiality agreement. Indicates that you will not use the information about the seller’s business for any purpose other than making the decision to buy it.
• Contracts & Leases. Does the business have a current lease, or contracts, that you’re going to have to keep or negotiate for?
• Financial statements. Examine the financial statements from the last three to five years. Also make sure an audit letter from a reputable CPA firm is included in the statements.
• Tax Returns. Review the business’s tax returns from the past three to five years.
• Important documents. For example: property documents, customer lists, sales records, advertising materials, employee and manager information and contracts.

The sales agreement

Once you and your legal and financial advisors determine the business is worth purchasing, you will draw up a sales agreement. This document will put into writing what you intend to purchase: business assets, customer lists, intellectual property and goodwill. (While you can supply the information, a lawyer needs to provide the actual agreement.

Closing time

This is the final step in purchasing an existing business and can be a formal paper-signing event or as informal as exchanging documents digitally. (If you haven’t paid attention during the numerous times we’ve mentioned it above, you should have  legal counsel through this process.)