Very carefully. There are a lot of advantages to buying an existing business, but there can be many dangers as well. You get to jump right in feet first and have the potential to make money quickly, but you are also inheriting someone else’s problems and possibly debt. Looking for a bargain is important, but do not let it distract you from some of the other important factors that you should consider.
Successfully building a business from the ground up takes a certain personality type. Not all of us are wired to deal with the inevitable roller coaster ride; the highs and lows the business is going to go through before finding a way to stabilize, a place for itself within the market. This is the exact reason that so many people are attracted to the franchise model as they typically give you the proper tools and assistance needed to overcome many of these hurdles. This is just one of the many options to consider when looking for an existing business to purchase, with its long list of pros and cons to consider just like the rest.
To start from scratch, or to buy an existing business? That is the question…..
If you start a business from scratch the only things that you have to rely on are your own experience and confidence. There is nothing to analyze or examine except the ideas in your head or the memories that you have of a previous experience. FOr these reasons, and many more, this obviously has a lot more risk involved then purchasing an existing business. When you buy a business that is currently up and running it will hopefully be generating some type of revenue already. Even if it is losing money, you should be able to review the financials so that you know exactly what to expect, and hopefully how to improve operations. An existing business is likely to have an established customer base that you can inspect and look at from a fresh perspective. There have been many times our firm has been involved in business acquisitions where the current owners were missing a huge portion of the market share simply because they did not know that it existed; they were used to doing business a certain way and only focused on a limited customer demographic. Needless to say, those are the opportunities we all dream of as the profits can be increased quickly and with ease.
Reputation was a factor that used to much harder to put a value on, as you had to rely on people that you knew for inside information or general word of mouth. In today’s day and age, the internet has provided us with a nearly unlimited amount of information about businesses and their customers sentiment. Not everything that you read is going to be 100% accurate, some people are unnecessarily critical or just have an axe to grind. But, a business that values the reputation will at least put some time into their online presence and do what they can to get satisfied customers to share their experiences. The amount of money this can make or lose a business in the long run is truly astonishing when you sit down and calculate it all out.
There is nothing better then buying a business that has a well trained and loyal staff that is capable of running the entire operation all by themselves. Now, that does not mean it will stay that way and certainly not that it was easy to accomplish in the first place. But, it is a valuable asset that needs to be scrutinized as there is a big difference between the majority of employees having longevity versus the revolving door that can accompany poor management or ownership. There is nothing that can not be fixed, and you should not get scares away from a business even when some of the staff is on the verge of getting into a fist fight in front of you. It is just another one of those things that needs to be properly planned for, and factored into your valuation. Another one of those things that you may end up inheriting with an existing business instead of creating yourself, for better or worse.
The true cost can sometimes be hard to determine
It is hard to put a value on time, but not impossible. We all have a certain level of income that we have to make in order to pay the bills; to keep the lights on and the kids well fed. That is the best place to start when you are considering buying or starting a business, is it going to be able to financially support you or not. Some people have enough savings to take on riskier endeavors, and they will hopefully be able to reap larger rewards for taking these risks. Others need a steady cash flow coming in, and that can sometimes be a difficult thing to achieve when you own your own business. There are going to be times that you may need to reinvest so that you can gain market share or increase profit margins long term. There may be times that you find nothing you are doing is working and the business is just not able to turn a profit.
You have to pay more if somebody else already created it themselves
There are rare occasion where you will find a great deal on an existing business, but the majority of the time you are going to end up paying a lot more then you would have if you had instead started the business new yourself. If you are going to need financing or to take out a business loan anytime in the near future, keep in mind that bankers feel a lot more comfortable with a business that has been around for a few years. Trying to get someone to lend you money for a brand new endeavor can be difficult to say the least. When looking at a existing business you are going to want to determine what tangible and intangible assets that you are going to be buying. Intangible assets are basically the things you can not see or touch, necessarily, such as goodwill, patents, trademarks and other such things. Tangible assets are the ones that most of us are familiar with, the inventory and stock, equipment, and the like. When dealing with the tangible assets you are going to want to make sure that they are in good shape, try to determine how old they are and thus when they are likely to need replacing, and if looking at inventory do a little digging to see if it is going to be tough to sell.
Does the shoe both fit and look good at the same time?
You want to at least enjoy what you are doing; to be able to wake up every day and feel excited to tackle whatever comes at you. That is why you wanted to open a business in the first place right? Well it is a nice thought and all, but I can in no way promise you that you are going to love what you do. First and foremost, you want to make sure that you make money, and only then can you worry about enjoying yourself. Many have made the mistake of taking something they enjoyed as a hobby and trying to turn it into a business without thinking through the financials first. Not only can you lose a lot of money, but you can also lose the passion which you once enjoyed as a failing business can taint just about anything associated with it forever more.
Then I will just open up a shop on the beach and enjoy the weather
I hate to sound like a broken record, but need to remind you once again to keep your eye on the bottom line above all else. Location is crucial for picking a successful business to buy; it can literally make or break the entire deal. Start by picking a general geographic area and then buckling down to answer some of the tougher questions. Are you going to be able to attract the right people to work at your establishment? How much is that labor going to cost you, including taxes due? Take a leisurely stroll around town to check out your potential competition and to get a good lay of the land. If you are still feeling optimistic after all of this, then it is time to proceed to the next step.
Finding the right opportunity for sale
I never want to explicitly tell a client not to try something just because it has never worked for our firm. It would be great if you one day decided that you wanted to purchase a sushi restaurant, so you picked your favorite spot, went in and talked to the owner, agreed to a price, and then proceeded to finalize the paperwork. It would also be great if money just grew on trees and we could all earn a living for just breathing. If you want to find a business to purchase on your own, it is going to take a lot of hard work. Upfront costs are going to include a whole lot of time and energy plus whatever expenses are associated with acquiring and contacting the leads you generate. For instance, the wear and tear on your car plus the gasoline in addition to the amount of money you could be making working somewhere else, all need to be calculated to get your true cost figured out. It is not easy just finding a business that you are interested in buying, let alone seeing it through to a closing. Thus, why so many people seek the services of a professional.