Buy — don’t start — new business
May 22, 2017
"His insomnia was so bad, he couldn't sleep during office hours." Arthur Baer
Many have felt the desire to do something entrepreneurial. The allure of being one's own boss can be tantalizing. The opportunity to be the master of your own destiny, and your investments, can be very rewarding.
But it can also be very frightening. We've all read about the high failure rates for startup businesses. Less than half of startups make it through the first three years and 23 percent won't even make it past their first birthday.
There are reasons for this, such as insufficient operating capital, bad management, strong competition, weak consumer base, poor business concept or even just plain bad luck. Owners of new businesses need to manage a multitude of details, such as product and service positioning, branding, marketing, employee hiring and training, site location, choosing vendors and establishing terms, etc.
Even when all the stars are aligned and the correct decisions are made, it can be months or even years before they begin to see positive cash flow.
Imagine if these potential pitfalls could be significantly reduced for you as a business operator? They can.
Recommended Stories For You
By purchasing an existing business instead of trying to start one from scratch, a buyer can dramatically minimize the risks associated with starting a brand-new business.
Successful existing businesses have a proven track record of profits that generally continue long after a business has been sold. As the new owner, you can take the business to even higher profitability by incorporating new ideas, expertise and energy.
A business with a well-known name, location, product mix, knowledgeable employees, etc. will enable a new owner to focus on long-range strategic planning rather than day-to-day minutia.
There will be no suffering through an extensive start up period as you struggle to attract customers to your business. You can use the business' established customers for immediate cash flow as your base for future business growth.
Another reason existing businesses can be very attractive is that typical buyers are able to use the sellers financing to leverage their buying potential. This ensures that the buyer gets a maximum bang for their investment dollars.
Also, a new owner can negotiate a time frame where the previous owner will stick around to ensure a smooth transition. Additionally, with seller financing, sellers will want to do everything they can to ensure the success of the new owner.
Once deciding to buy a business, the question then becomes what business should you buy? Many budding entrepreneurs know what they're not interested in, but really don't know what would be attractive to them.
A professional business broker can help them. They show the buyer a variety of businesses that are legitimately interested in selling and help them through the purchasing process.
They should be able to explain the owners' motivations for selling and be able to provide pertinent information regarding their financial performance, staffing, facilities, equipment, inventory, product lines, customer base, etc.
A professional broker will be able to draft a purchase agreement that covers all pertinent issues (non-compete agreements, training rights, leases, due diligence, etc.) plus any unique contingencies that are relevant to the transaction.
When making the decision to buy your own business, using a professional business broker will allow you to concentrate on the important matters associated with operating the business.
Buzz Harris, licensed business broker, The Liberty Group of Nevada. He can be reached at BHarris@TheLibertyGroupofNevada.com or at 775-825-3948.