What to sell? Who to employ? How to advertise for employees? How to market the business? How to finance the business? All of these are important questions that must be answered by anyone who starts a new business. Some entrepreneurs may decide that the challenges of starting a new business from scratch are too much to handle. Buying an established business can be a better choice, since many of those start-up questions have already been answered. Statistics show that new owners are more likely to succeed with an established business than by starting one from scratch.
The ability to capitalize on hidden assets that the current owners may not be aware of is a major reason one might decide to purchase a business. Sometimes owners are so close to their current mode of operation that they cannot see opportunities to broaden their base and leverage assets that they already possess. An outsider or someone peripherally associated with the business might have the insight needed to see new and undeveloped potential.
The biggest pitfall a purchaser of an established business can be susceptible to is that of purchasing without going through the venture planning stage. It may be easy to say "I don't need to write a plan, this business already exists and has that." But those plans, if they exist, were written by the old owners and may not be applicable to the current situation.
There are two ways of buying an established business: buying the assets of the company or buying it as a going concern. The decision to buy an established business can be made for an independent business or for a franchise. In the case of a franchise, there may be more restrictions on whether the business must be purchased as a going concern, meaning the business will exist as the same entity once it is acquired. Some franchises require that they be sold as going concerns. In some cases there may be assets that are transferable in no other way, making a going concern purchase the only option.
Prospect of "Good Will"
Goodwill can be described as excess value that an independent purchaser might pay for a business over and above its worth as a collection of assets. Several things contribute to
goodwill, including the skills, personalities and abilities of the owners and workers, and the location of the business. All of these factors combine to give the business distinctive competencies and a competitive edge in the market.
Goodwill may or may not be transferable. This will depend heavily on what the goodwill is comprised of. There are law firms and consultants that specialize in these determinations and who can place a monetary on whatever goodwill is present. Goodwill can be divided into enterprise goodwill, which encompasses location, branding, and employee skills, and personal goodwill, which is generally defined as the personal relationships, capabilities and knowledge of the owner. Personal goodwill can be transferred in some cases.
An example of this would be a store owner who sells the business to someone else. The physical location, name, fixtures, employees and signage all remain the same. But the old owner is no longer present, and the relationships he had with the customers are gone as well. Since these relationships were directly responsible for many of the sales that were made, the success of the business after the sale becomes questionable.
http://www.valuepointconsulting.com/article_goodwill04_07.asp
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