When people consider starting their own business, they often think about what it would take to build it from scratch, developing an idea and expanding on that from the ground up. Of course, there are a number of disadvantages to this approach, among which include how difficult it is to build a customer base, marketing the business, not to mention cash flow and employees without any kind of reputation to work with.
Buying an Existing Business
Usually, it is riskier to start a business from scratch than it is to buy one that already has a customer base.
When you buy a business that exists already, you’ll take charge of something that is already profitable and has been gaining a good cash flow along with a customer base and employees that are familiar with the reputation and the products of the company. In addition, you don’t need to set up new policies and reinvent the wheel when someone already established a winning formula.
It’s true, however, that buying a business that has been established already is more costly than what it would take to build from scratch. However, financing for something already present tends to be easier to obtain than a business from scratch. This is because investors and banks are often more comfortable loaning out money when there is existing reputation to back up the investment.
Owning the Copyrights
Buying a business can also give you a number of legal rights, such as copyrights, that can end up being very valuable.
At the end of the day, there is no such thing as a certainty, and getting an established business is no exception. Without care, you could easily wind up with bad distribution, employees that don’t want to cooperate and too much inventory that you cannot sell. To ensure you get the best deal you can with a good business, make sure you keep a few things in mind before seeking a purchase.
First and foremost, give yourself a true assessment before looking to own any kind of business. Making this decision is just the beginning, and understanding yourself is what will bring you to the company that is the best fit for you. A personality assessment will be one place to start.
- What kind of hours are you looking for? (For instance, retail hours and manufacturing hours vary considerably)
- What do you enjoy doing?
- What don’t you enjoy doing?
- What are your strengths and weaknesses?
Next, you must put your own finances under scrutiny:
- What kind of resources do you have financially? Of that, how much would you put as a down payment for your business?
- Is this down payment liquid capital?
- Are you comfortable with the idea of a second mortgage if necessary?
- How is your personal budget?
When you buy a business and become the owner, you need to address a variety of things before you can engage in any kind of transactions. For example, you need to get all the permits and licenses needed to operate that most businesses require. The kind of permit you’ll need depend on the state and the nature of your business; use ABLIS, the Business Licence and Information Service to get an idea of what kind of permits you need on the local, state and federal levels.
Zoning requirements can also affect your business if you’re looking to own a business in a specific area. Similarly, if you’re getting real property with your business, you need to know the environmental regulations within the area of the business as well.
The Value of a Business
There are numerous ways to figure out a businesses value to determine whether you are going to pay an equitable and fair price for it. Some of these methods include the following:
- Capitalized Earning Approach: This refers to what an investor expects for the return on his investment
- Excess Earning Method: Similar to the above, but it will separate asset returns from its profits.
- Cash Flow Method: This is typically to figure out how much the cash flow can support a loan.
Following the steps outlined in this article will almost certainly put you on the right path and make your business buying process a smooth one. Search sites such as Biz Buy Sell or Biz Listings when buying a business as they have thousands of businesses for sale and fresh listings daily.
You can never ask too many questions when buying a business and always seek legal advice before making the financial commitment.