Format hard drive and use the TM

the story is long but start from downloadingthe mountain lion. i try to install but the system told me i need to run hard drive repair utility becouse the hard drive is damaged. i did that but the software told me is too much and i need to format the hard. after that . i try to remove some un use software and even try to re install the lion first and then update it to mountain lion but it didn't work.
i have back up on time machine. i have outlook 2011 mac plus paralele with autocad and quickbook acounting software on windows.
i need to know if i format the machine and use the TM to restore the machine . do i need to install all software again . do i lose any data or just machine will look the same as now.
i am new in mac i have it just for year.
please help.
thanks

Yes, you can use an external drive. To upgrade, however, means:
Purchase Snow Leopard DVD then update Snow Leopard to 10.6.8.
Access the App Store with your Apple ID and purchase and download Lion.
Your computer must meet system requirements:
Snow Leopard General requirements
Mac computer with an Intel processor
1GB of memory
5GB of available disk space
DVD drive for installation
Some features require a compatible Internet service provider; fees may apply.
Some features require Apple’s MobileMe service; fees and terms apply.
Lion System Requirements
Mac computer with an Intel Core 2 Duo, Core i3, Core i5, Core i7, or Xeon processor
2GB of memory
OS X v10.6.6 or later (v10.6.8 recommended)
7GB of available space
Some features require an Apple ID; terms apply.
Obviously, you do not have to upgrade to Lion but can stop at Snow Leopard 10.6.8 which is sufficient for the current versions of iLife apps. Note that iDVD is no longer part of the newest version of iLife. Lion 10.7.2 or later is needed should you wish to use iCloud.

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