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Buying an Existing Operation with Your New Corporation

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Starting your own corporation doesn’t have to involve beginning a new business. By using your corporation as a vehicle to buy an existing business, you can avoid several risks. An existing business already has a proven market, customer base, location, and reputation. Your corporation can purchase all of those things from the current business operator.

The average annual revenue for businesses with less than 20 employees is about a half million dollars. You could end up taking quite a long time to reach that level on your own. Acquiring a seasoned small business with verifiable financial records permits you to avoid the headaches and uncertainty of starting from scratch. In the process, you acquire equipment, inventory, and even a trained staff of employees.

Statistical evidence indicates that about one-fifth of businesses in the US with fewer than 20 employees are sold every year. You can find an experienced business broker in your area by checking with the International Business Brokers Association (IBBA). These professionals cost you nothing because they take their fees from the proceeds of the business seller.

You’ll find a reputable broker through the IBBA because the organization has a code of ethics for its members. Although the broker represents the business seller, misrepresentation of facts is forbidden.

When buying a business, you want to conduct what’s called an “asset purchase.” That’s why you need to create your own corporation. Among the assets acquired are intangibles such as a business name and reputation. Although you name your own corporation, it can operate under the name of an acquired business.

Of course, you’re paying for the business name and reputation in addition to the cost of equipment and inventory. To stay out of trouble from paying too much, there are two simple valuation rules. First, make sure that your loan payment for financing the business purchase uses only about one-third of the business cash flow. Secondly, make sure the business cash flow pays you back your down payment within two years. As a result, using a new corporation to buy an existing operation is a safe way to become an entrepreneur.