How To Purchase A Good Running Business In India?

. 6 min read
How To Purchase A Good Running Business In India?

Business is a big deal, quite literally. The rate of failure in startups is significantly high. As per data from the Bureau of Labor Statistics, 20% of small businesses fail in their first year and 50% fail in their fifth year. Given the gruesome atmosphere of the market, entrepreneurs have come up with a new way out and are more than willing to buy a good running business rather than starting from scratch.

This practice of buying an existing business is fast becoming the most sought-after business tactic in the market. Hence, to earn profits, avoid the initial toil of starting from zero and keep up with the trend, you can buy a good running business, keeping the below-mentioned points in mind.

1. Explore Area Of Interest

When planning to buy a running business, the thing that needs clarity in the first place is where your interest and strength lie. It is always advised to first start with the known rather than diving into the unknown. Hence, if you’ve worked in industry, have a good knowledge of its fundamentals and can put the knowledge to work, then buying businesses of the same industry would prove to be profitable. In case, you have an interest in industries you have never worked in, do thorough market research and take guidance from experts when required.

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2. Check Licenses, Permits And Paperwork

If you are pondering over the question, “how to buy a business,” especially a good running business, and also found one, the first thing to make sure is that it has all business licenses. This business that you have been eyeing, should be running as per business licensing laws and should have a permit to stay open, especially if it belongs to highly regulated industries.

Another thing to look out for when buying an existing business is whether it is a sole proprietorship or partnership business. In either of the cases, you would have to go ahead and do the paperwork to make it a registered business entity, such as an LLC or corporation. You can also get your hands on the certificate of good standing from the secretary of state, which will help you in the smooth running of the business within the state.

3. Environmental and Zoning Laws

The reason why a business is a sale could be that it has received official orders to be shut down, but will the owner tell you? You never know. So, it's important to check whether the business you are wanting to buy doesn’t violate any commercial and residential zone regulations and laws. This is very important when buying businesses like bars and nightclubs.

Environmental regulations are another thing that needs to be adhered to. Just like a violation of zoning laws, businesses usually hide if they are violating environmental regulations. So, before actually signing the deal, double-check that the business meets an area's environmental regulations.

4. Evaluate The Business

Do thorough background research on the business you are going to buy. When buying an  business, the biggest perks for the buyer are the assets that come along. These assets also need to be transferred to you legally or you can ensure that the cost of obsolete assets is not borne. Other things to look at to make an accurate evaluation of the business include:

  • Tax Returns
  • Balance Sheets
  • Cash Flow Statements
  • Sales Records
  • Accounts Payable
  • Debt Disclosures
  • Marketing And Advertising Costs
  • Status Of Inventory, Equipment, And Building
  • Client History
  • Market History
  • Financial Records
  • Seller Customer Relations
  • Location
  • Employee Chart Of The Business

Make sure you go through these, before transferring the business to your name.

5. Prepare the Letter Of Intent

Once you have checked the zoning regulations, made careful evaluations and are assured that it is safe to buy an existing business, you can move further with the financial negotiation process. After checking on a mutually agreed price taking into account the assets and liabilities, you need to prepare the Letter of Intent (LOI). It consists of the price proposal and terms and conditions of the sale. It is a step that seals the deal.

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6. Transference Of Business

The LOI prepared is the step that communicates to the seller that the buyer is taking the deal seriously. Hence, the next step in the process is to take the help of a legal professional and get the business transferred by getting signatures and permits from the seller or attorneys. When the legal professional makes the documents it will hold information about things you’ve acquired:

  • Tangible assets
  • Intangible assets
  • Intellectual property
  • Customer lists

Once you have successfully bought a running business, you will have the following documents as proof:

  • Bill of Sale
  • Asset acquisition statement listed in IRS Form
  • Patents, trademarks and copyrights

Before buying a good running business in India, these are a couple of things that need to be kept in mind. ROI, understanding why the business is a sale, and whether it is in sync with your values and vision are other important dimensions that are going to affect the benefit you derive from this new investment.

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3) How to Expand a Textile Business?
4) How to Start a New Apparel Manufacturing Business?

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Q. How to buy a business with no money?

Ans. One can buy a business with no money by looking for a business with seller financing or the ones which allow leveraged buyout, i.e. the value of the business is lower than its assets.

Q. Is buying an existing business profitable?

Ans. Yes, buying an existing business is profitable in most cases. All the basic paperwork has already been done, there are capital goods, assets, and employees in place, one doesn’t need to put in a huge amount of money or no money at all, the market is already established and financial history to make strategic decisions, making the purchase profitable.

Q. How to buy a small business?

Ans. One can buy a small business by looking for it online or offline. Then, after getting a financial evaluation done and negotiating the price, they can submit the LOI, get the financing done and close the deal.

Q. What are the disadvantages of buying an existing business?

Ans. The disadvantages of buying an existing business are that it might be an under-performing venture needing a lot of investment, needs equipment replacement, is a part of a declining industry, or employees are unskilled.

Q. How to find a business to buy?

Ans. Finding a business to buy is very easy these days. One can put up advertisements, take the help of a business broker or join a network where businesses are sold. Online portals where one can buy businesses include BizBuySell, BizQuest, BusinessBroker, BusinessesForSale, BusinessMart, DealStream, Franchise Gator, and LoopNet.