Introduction

Taking the plunge into owning your own business is exciting—but buying an existing small business? That can be a total game-changer. Instead of starting from scratch, you're stepping into a business with a proven track record, loyal customers, and working systems.

However, this isn’t something to rush into. Buying a business is a huge decision, and you need to know exactly what you're doing. This guide will walk you through everything you need to know, from understanding the true value of the business to finally closing the deal—and all the steps in between.

Why Buy a Small Business?

Startup business Existing business

Which one is best for you?

Image depicting contrast between starting a business and buying an existing business

Let’s be real, starting a business from scratch can feel like you're running through quicksand. The stress of building up customers, developing products, and sorting out operations can take years, and the risk is high. Buying an established business gives you a head start. Here’s why:

Instant Cash Flow: When you buy an existing business, it’s like stepping onto a treadmill that’s already running. You don’t have to wait months (or even years) for the money to start coming in—it’s already happening. The previous owner has done the hard work of setting up revenue streams, so you can hit the ground running.

Built-In Customer Base: A ready-made audience is a huge plus. Rather than pounding the pavement to find new customers, you inherit loyal customers who are already invested in the brand. That’s marketing dollars saved! In addition, there is likely an email list already in place that you can monetize through strategic email campaigns. If the business does not have an email list in place a list of customers can be accessed to build it quickly and scale up profits through strategic email marketing.
Established Operations: No more worrying about setting up systems from scratch. Processes like inventory management, vendor relationships, and even the staff are often already in place. You can take what’s there and either optimize it or continue as is.

Lower Risk: Since you’re buying something with a track record, you can analyze historical data to make informed decisions. You’re also avoiding the trial-and-error phase most startups face, making your journey far less risky. Buying a going business also puts you in a better place to access capital from a bank or other lending source. Startups usually are challenged to qualify for business loans from a bank because there is no track record to show their ability to repay loans or cash flow management history.

How to Find the Right Business to Buy

Magnifying glass hovering over a business map looking for businesses to buy

Finding the right business to buy can feel like searching for a needle in a haystack or having to use a giant magnifying glass to search and see what is available and whether it will fit your buying criteria. But, with the right strategy, you can narrow down your options and find a perfect match.

Online Marketplaces: Websites like BizBuySell, LoopNet, and Flippa are like the Zillow (a top real estate buy/sell website), of business buying. You can browse businesses by category, location, and price. It’s a good starting point, but make sure to dig deeper than just a listing. What’s the story behind the sale? How are the business’s financials?
Business Brokers: A good business broker is like a matchmaker for buyers and sellers. They not only help you find businesses that meet your criteria but also guide you through the entire purchasing process. Brokers typically take a commission, but they can save you loads of time and stress by filtering out bad deals. The seller is usually the one that will pay the commission.
Networking: Ever heard of buying a business through word of mouth? Attending local networking events, joining business associations, or chatting up people in your industry can yield surprising results. Sometimes the best opportunities aren’t even listed—they’re passed along through personal connections.
Target the Right Industry: This is where you want to pause and think about your skills, interests, and goals. Don’t buy a business just because it’s making money. Ask yourself: Will you enjoy running this? Do you have the experience and passion to take it to the next level?

Licensing Considerations

Licensing is like renting out your intellectual property. You allow others to use your IP, usually in exchange for payment. When considering licensing:

Decide if you want to offer exclusive or non-exclusive licenses.
Determine the geographic areas where the license applies.
Set the duration of the license.

A helpful AI tool to assist with licensing management is anaqua.com. This AI-enhanced software helps manage IP portfolios, including licensing agreements and royalty tracking.

Unauthorized and illegal use of intellectual property is a common pain point for business owners and entrepreneurs. It can also be very costly in the form of loss of profits and if there is a need to litigate to protect your intellectual property, attorney fees can be extremely expensive. Therefore, it is best to always have a strong licensing agreement in place with anyone who you agree to allow to utilize your product. This can help deter the wrongful use against your interests.

Several years ago, I represented a small business that had a fantastic product that revolutionized the user experience of having to use a finger to press down on a button to release the contents of any spray can. The invention allowed the user to simply attach an apparatus on top of the can and then use the handle like a gun with a trigger. Pull the trigger and pressure was applied to the button which released the contents of the spray.

My client licensed this product to numerous other companies under different brand names. One company with whom the client company had a license agreement started to manufacture a replica of the product and sell it under its own brand. Fortunately, a licensing agreement was in place and when the client company learned of this license agreement violation, I filed a lawsuit and was able to obtain an injunction to stop the company from violating the agreement and the offending company was required to pay my client substantial fees in damages and had to pay all of my attorney’s fees.

If there had not been a license in place the circumstances would have been much different and detrimental to my client. This is a prime example of why a business must be diligent in protecting its intellectual property and the rights that come with it.

Who Owns Intellectual Property and Rights?

An image of several people with intellectual ideas with the the question who owns the rights

Understanding who owns intellectual property and rights is crucial. Generally, the person who creates something owns it. But it's not always that simple:

Employees: Usually, if you create something as part of your job, your employer owns it.
Freelancers: If you hire someone to create something for you, make sure your contract clearly states who will own the IP.
Collaborations: When people work together, ownership can get tricky. It's best to agree on ownership before starting a project.

What is Protected by Intellectual Property Law?

Intellectual property law casts a wide net, protecting various forms of creative and innovative work:

Inventions: Protected by patents
Creative works (like books, music, and art): Protected by copyright.
Brand names and logos: Protected by trademarks.
Industrial designs: Protected by design rights.

Small businesses are especially vulnerable when it comes to infringement upon their valuable intellectual properties because they usually have limited resources to fight to control and stop infringement when it occurs, especially, if the offender is a large company with deep pockets to fight a drawn-out battle.

The best defense for protecting intellectual property is to use the existing laws to protect assets and maintain a competitive edge. Below is a checklist to follow to help ensure standard operating procedures are in place to maximize intellectual property protection:

Identify and protect your IP:

Conduct an IP audit to identify valuable assets.
Register trademarks, copyrights, and patents as appropriate.
Use non-disclosure agreements (NDAs) to protect trade secrets.

Monitor and enforce your rights:

Regularly search for potential infringements.
Take action against infringers through cease-and-desist letters or legal proceedings.

Educate employees:

Train staff on the importance of IP and how to protect it.
Implement policies for handling confidential information.

Consider licensing:

Generate revenue by licensing your IP to others.

Here are two fictional examples of how a business can leverage IP laws to protect them and keep the competitive edge needed within the industry or application in which the IP property is being used.

Example 1: A small local bakery, "Sweet Delights," develops a unique recipe for gluten-free, low-calorie cupcakes. To protect their IP:

They keep the recipe as a trade secret, having employees sign NDAs.
They trademark their bakery name and logo.
They copyright their distinctive packing design.
They patent a special baking process that gives their cupcakes a unique texture.

This multi-faceted approach helps prevent competitors from copying their product or brand identity.

Example 2: A software startup, "EcoTrack," creates an innovative app for tracking personal carbon footprints. To protect their IP:

They patent their unique algorithm for calculating carbon emissions.
They copyright the app's source code and user interface design.
They trademark the app name and logo.
They keep future development plans as trade secrets.

For a deeper dive into what's protected, the World Intellectual Property Organization provides comprehensive information.

Using AI to Protect Intellectual Property and Rights.

Artificial intelligence isn't just changing how we do business; it's also revolutionizing how we protect intellectual property and rights. Here's how:

Automated patent searches: AI can quickly sift through millions of patents, helping you ensure your idea is new.
Trademark infringement detection: AI tools can scan the internet to find potential trademark violations.
Copyright violation monitoring: AI can identify unauthorized use of copyrighted material across the web.
Predictive analytics for IP portfolio management: AI can help predict which patents in your portfolio might be most valuable in the future.

An AI Tool for IP Protection

There are tools available that offer comprehensive IP protection, including trademark watching, and copyright infringement detection. Aclaimip.com is one such tool that should be reviewed for this purpose.

Intellectual Property Risks

Image showing a shield protecting intellectual property rights

Protecting your intellectual property comes with challenges. Being aware of these risks is the first step in guarding against them:

Infringement by competitors: Someone using your patented invention without permission.
Theft of trade secrets: An employee or hacker stealing your confidential information.
Counterfeiting: Fake products being sold under your brand name.
Cybersecurity threats: Digital attacks aimed at stealing your IP.

To learn more about cybersecurity and IP protection, visit the National Institute of Standards and Technology's Cybersecurity Framework.

An AI Tool for Risk Assessment

A resource that can be used to identify and mitigate digital risks to intellectual property is Cybelangel. This tool should be a part of a business's arsenal against cyber hackers that lurk to find a crack to enter through and steal valuable intellectual assets.

Fake Intellectual Properties

Counterfeit goods and pirated content are big problems in the world of intellectual property and rights. They can harm your brand and cut into your profits. Here's how to fight back:

Use anti-counterfeiting technologies: Things like holograms or special inks can make your products harder to fake.
Work with customs and law enforcement: Many countries have programs to help stop fake goods at the border.
Educate your customers: Help them spot the difference between real and fake products.

The fake products scam industry is a massive and growing problem, causing billions of dollars in losses annually. While it's challenging to pinpoint an exact figure for global losses due to fake product scams annually, statistics show that fake products are the probable cause of billions of dollars in losses each year.

The problem is pervasive and creates a dark cloud of fake products on a global scale and affects various aspects of e-commerce, from direct product fraud to associated scams like promo abuse and friendly fraud. Businesses in America take a huge hit of the losses. Unfortunately, small to medium-sized businesses that can afford the losses the least are often the most victimized because of their lack of education and limited resources when it comes to fake products.

The statistics below provide the impact of fake products. They should provide a wake-up call for businesses to be diligent about their intellectual property and rights:

In 2023, reported losses to impersonation scams, which include fake product scams, topped $1.1 billion in the United States alone. This is more than three times the amount reported in 2020.
On a global scale, the problem is even larger. In Latin America, it's estimated that 20% of all e-commerce revenue is lost to fraud, including fake product scams. More terrifying for merchants still, it is predicted that the cumulative losses to online payment fraud globally between now and 2027 will exceed $343 billion.
One extensive network of fake e-commerce stores, called BogusBazaar, has processed over one million orders since 2021. It's estimated that over 850,000 shoppers have fallen victim to this network alone, with ordered items totaling over $50 million. In the United States, promo abuse, a fraud often associated with fake products, cost retailers more than $89 billion annually in 2021.
Friendly fraud, which can involve fake product claims, is expected to cost merchants over $100 billion in chargebacks this year.
On Amazon, one of the world's largest e-commerce platforms, most listings are from third-party sellers, and a significant number of these are selling counterfeits.

The International AntiCounterfeiting Coalition offers resources on combating fake goods.

An AI Tool To Consider for Counterfeit Detection

AI tools are becoming increasingly sophisticated and can help prevent fake goods and stop the illegal use and infringement of intellectual property rights. Enrupty is an AI-based solution that authenticates goods to combat counterfeiting.

Intellectual Property Litigation

Sometimes, protecting your intellectual property means going to court. While it's not ideal, it's important to know the basics:

Proving ownership: You'll need to show that you own the IP in question.
Demonstrating infringement: You must prove that someone used your IP without permission.
Seeking remedies: Courts can order infringers to stop and pay damages.
Alternative dispute resolution: Mediation or arbitration can sometimes resolve issues without a full trial.

Conclusion

A futuristic cityscape with various IP symbols integrated into the buildings, representing the importance of IP in the business world

Understanding intellectual property and rights is crucial in today's business world, especially as AI continues to change the landscape. By knowing what IP is, how to protect it, and what risks to watch out for, you can better safeguard your business's valuable ideas and creations.

Remember, intellectual property protection is an ongoing process. Stay informed about changes in IP law, keep an eye on potential infringements, and don't hesitate to seek professional advice when needed. Your ideas are valuable – protect them wisely!

Intellectual Property and Rights: Strategies for Protection In The AI Age