ess was successful before, there is a good chance that it will continue to be successful in the future. However, if the business was a failure in the past, it may not be worth purchasing. In the words of Kahn, when you buy an existing business "you inherit either adept or incompetent employees along with either a readymade clientele or customers who never seem to pay their bills" (Kahn, 1988, P. 5). Because of the risk factor in buying a business, the prospective buyer should study the situation carefully. Furthermore, "any purchase contract should be prepared or at least carefully examined by your lawyer and/or accountant" (Fallek, 1989, PP. 6-34). The risk in buying an existing business can be reduced by buying into a franchise. Purchasing this type of business has fewer risks because there is a parent company which controls everything and is capable of helping out when there are financial difficulties. However, franchises limit business owners because "you not only sacrifice a percentage of your future profits, you also lose a degree of independence" (Kahn, 1988, p. 5). The risks involved in buying any kind of existing business are far less than those in establishing an entirely new one. With a new business, there is no track record to be analyzed. Therefore, the person planning on starting a small business must somehow be able to forecast in advance what the potential profitability of the chosen service or product will be. This forecasting is usually included in the creation of a business plan, which will be discussed later in this paper.
Upon deciding what type of business to start, the entrepreneur must next determine what the organizational and legal structure of the business will be. The three basic structures of a business are: the sole proprietorship, the partnership, and the corporation. There are advantages and disadvantages to each of these structures. With a sole proprietorship, there is only one owner of the...