There certainly is an important role for a competent commercial law attorney to advise and prepare legal structure of a business purchase and sale transaction. The problems arise when lawyers see themselves as business negotiators whose mission is to get "best deal" for their clients. They frequently forget that "best deal" has to involve both parties, buyer and seller, and that compromise is usually best solution. Lawyers generally have a very difficult time with compromise in this type of situation because they often see their role as advising their clients on how to get better deal. Usually, an attempt at a lopsided deal for either party will result in "no deal" at all.

Jungle Law #2: Caveat Businessus Emptor; (Let The Business Buyer Beware!)

As a matter of basic principle (and law in most States), all business brokers dealing with public are bound to be honest and forthright in their conduct concerning businesses that they represent for sale. But they also have a fiduciary relationship (position of trust) to uphold between themselves and their clients (the business seller, in most cases). They must present a business for sale in its "best light" without misrepresenting any significant facts but at same time not pointing out all of potential business pitfalls. This usually establishes an adversarial relationship between buyer and broker as well as between buyer and seller. The best course of action for a buyer is to trust only what they can verify during a rigorous due diligence process and best approach on part of seller/broker is full disclosure of all pertinent information.

Jungle Law #3: A Business Is Worth Only Whatever Someone Is Willing To Pay For It At A Particular Point In Time!

Buyers and sellers are natural adversaries; sellers want as much as they can get and buyer wants to pay as little as possible. The broker is intensely interested too, because commission amount is usually based on a percentage of total selling price. So, what process should you use to value a business? Forget about putting a value on assets based on resale value. Forget about comparing business to one in next town that sold for a particular amount. Forget about all "rules of thumb" like X times earnings or Y times gross income or some dollar amount per account or any other shortcut formula. A business value, and therefore its selling price, only makes sense when it's based on capitalized earnings stream. Capitalization is simply process used to determine today's value of a stream of future earnings. In case of valuing a business, "today's value" is value of business, and "stream of future earnings" is expected future years' profit of business based on current earnings. Most small businesses sell for a price in range of 2-5 times earnings before interest and tax expenses are deducted.

Jungle Law #4: A Business Buyer Is Really Buying A Stream Of Earnings!

The assets of business are just tools of trade that enable an earnings stream to be realized. Without earnings stream, business essentially has no value. You should note that in using this method, a business may actually be worth less than its fair market asset value or in many cases worth substantially more. A seller will be able to get most they can for a business by showing a buyer true investment value in business based on provable earnings.

Jungle Law #5: Ignore All Claims Of Unreported Income!

This is a very sensitive subject known as unreported (to IRS) cash sales. Some business sellers may try to get you to accept their claim that they had significant amounts of cash income that did not show up on their IRS Tax Return and accordingly want you to include this phantom income in your valuation of their business. I highly recommend that you totally ignore these claims and deal only with business's reported income. Who is to say if business owner's claims are true? If business owner will lie to Uncle Sam might they not also lie to you?

Jungle Law #6: Most Sellers Are Fibbers! (Or They At Least Stretch The Truth)

But, it can also be very frightening for those just starting out! We’ve all heard about high mortality rates for new business ownership; 50% won’t make it through first three years. There are many reasons for this. Wouldn’t it be great if potential problems could be eliminated for you as a new business operator? Well, they can!

Buy an existing profitable business instead of trying to start one from scratch! There are three key advantages to this:

Existing successful businesses have a proven track record of profits that will most likely continue long after business sale. Now you get to apply your new ideas, expertise, and renewed energy to take business to even higher profitability.

You’ll have established customers for immediate cash flow. No suffering through a long start-up period where you struggle to attract customers to your business. Use these customers as building blocks for future growth.

Typically, you’ll be able to use a business seller’s financing of a large portion of purchase price to maximize your buying potential.

There’s no question that success rate for new business owners that have purchased an existing business is much higher than for those who start a newly formed business. This is because an existing profitable business has already proven that it’s successful.

However, actual process of purchasing an operating business can be a challenging undertaking and you’ll want to be fully prepared. You need to gather as much information as possible which will help you to; find a suitable business for sale, value business, arrange financing, conduct negotiations, and finally, to actually close deal and transfer ownership.

The first step in this process is to find out if you’re truly fully motivated to operate a small business (whether you start it or buy it). Ask yourself:

Do I know what kind of business you want to buy? Am I technically qualified and experienced enough to run business? Am I prepared to “eat, sleep, and drink” business 24-hours a day?

Next, you need to determine what your key reason is for buying and operating a business:

Buying a job to earn a living or making an investment. Buying prestige (many business owners are respected community leaders). Seeking self-fulfillment and control of your own destiny.

There are many sources of businesses for sale and quite a few businesses can be relocated. The Internet is one good source but you should start with business brokers who serve your area. You will find them in phone book yellow pages.