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MAKING THE RIGHT DECISIONS WHEN BUYING A SMALL BUSINESS - Business - Small Business

MAKING THE RIGHT DECISIONS WHEN BUYING A SMALL BUSINESS    by Lawrence Crown

in Business / Small Business    (submitted 2012-02-23)

BUYING A SMALL BUSINESS

WHY BUY AN ESTABLISHED BUSINESS?

The best way to answer this question is to keep it short, simple, and to the point!

In most instances small businesses are acquired by first time business buyers. And this question comes up to them almost all the time. “Why not start my own from ground up?” Well, because it’s too risky! Buy an existing business, “because it is established,” you don’t have to start from scratch and advertise and hope to get clients. Most new businesses fail in their first year, and this is not news. Established businesses have a track record. When you buy an established business you’ll start profiting from day one. There will be no guessing, hoping, wishing, or waiting.

When you buy an established business the previous owner trains and prepares you for that business. Because guess what? The previous owner knows how to squeeze every dime out of that business to maximize profits. More often than not, mandatory training is a contingency when you make an offer to buy an established business. Something that is very well worth to take advantage of and learn and ask as many questions as possible to insure future stability and growth.

A PROFESSIONAL BUSINESS BROKER

First time small business buyers have a much better chance of finding the right business if they team up with a professional business broker. It just takes a lot of the stress away. Your business broker will show you businesses, advise you, do market comparisons and come up with the real value of the business you are considering purchasing.

But don’t be fooled. Finding the right business broker takes some homework. I recommend never to settle for less. Call and see at least a few business brokers before you make up your mind. Once you know your budget for your small business purchase ask the brokers if they will work with that budget. Sometimes they have general price ranges that they work between. For example, they only sell businesses prices between 500k to 5million. So in this case it is probably a waste of time to talk with them if your budget is 100k. And please try not to get stressed out in this entire process of buying a small business. It’s not as hard as it sounds. And in case you feel it’s not for you don’t be sad because it is not for everyone.

HOW MUCH TO PAY FOR A BUSINESS?

Since most of small businesses are sold to first time buyers, this is a question that comes up quite a few times. Most times even the owner or seller doesn’t know the true value of his/her business. They may say, “It has got to be at least 10 x my gross sales…,” or “I bought this business for this much, so now it has got to be worth this much.” These kinds of scenarios happen a whole lot. And it may not be the seller’s fault because that could be what they were told when they bought the business in the first place. So it’s fair to say that some sellers are completely out of touch with reality. But keep in mind that sometimes it’s possible to buy a business below its market value for various reasons. For instance; the owner want to get rid of his/her business and do something else, the seller has not consulted with a professional business broker, health reasons, emergency, hospital bills, other business ventures, etc… Below market priced businesses should accurately be investigate and appraised carefully to be able to figure out whether it is worth buying or not.

With all of these things being said, no one should be confused about how much to pay for a business because there are industry standards and market comparisons. If you are someone who is working with a professional business broker then you probably should not have any problems appraising a business. Working with a professional business broker makes life a whole lot easier, and is something that I would recommend to anyone who is searching or considering buying a small business.

PRICING NEGOTIATIONS

The endless inverse relationship between buyers and seller. But this does not matter to the informed buyer/seller. Meaning that if the seller/buyer did their homework and came up with the right market value price for a business then there is no further problems or questions. The considering party now know what the next step would have to be. That is where or not to accept the offer. My recommendation is to be true to the market and not waste irreversible time.

Not knowing the current market value of the business is where the problems begin. For example; just because a seller is lowering the price doesn’t necessarily mean you are getting a deal, or let’s say as a business broker you appraise a business for “x” and the seller wants “y” amount and you take the listings in hopes that they will come to their senses and lower the price later.

It’s not easy. But it’s the only way. “He said, she said, they think.” All that is nonsense. Don’t waste your time and get the true market value of the business. This will save a lot of time and nerves, and would make it easier to buy or sell.

READY TO BUY AND RUN A BUSINESS?

Of course the primary requirement to purchasing a business is financial ability. But let’s not leave another important factor alone. I’m talking about whether or not you have the ability to learn and run a business. It’s very different compared to just working for someone and getting a pay check every other week.

You need to ask yourself these questions; Are you ready to make business decision on a daily business? Can you withstand the pressure of being responsible for everything? Because at the end of the day this is what it comes to. Do you have the ability to engage in effective communication with your vendors, staff, client, etc…? Are you computer savvy? Are you able to properly write emails? Are you on time? And many more questions like this.

The fact is that you don’t have to be perfect at these things, but if you realize early on what you need to improve on or who you need to hire to help you, then you will save a lot of nerves and perhaps money and time. Being in business for yourself is not easy. But owning a business of your own is still a big part of the American Dream after all. And you should definitely be honest with yourself and follow your heart.

BUSINESS GOALS

The point of being in business is to be profitable. There are many successful business models. Which one is the right one for you? This is a great question to ask yourself early on because time goes by fast and you don’t want to be jumping from one idea to the next. It’s always good to formulate a plan, one which is based on reality and availability. A lot of first time business buyers fail to buy a business because they wait too long for the right business to come along and eat away their savings and lose the ability to be a business owner because of this.

There are industry standards to pricing most types of businesses. Once you know what type of business is most compatible for you, then at this point you may ask a professional business broker to assist you finding what you are looking for based on price, profitability, affordability, and location. It really takes the guess work out of figuring out what the market value for a certain business is. Once you are sure about what type of business to buy and the price you are willing to pay, then it’s just a matter of time to find it. Patience goes a long way, but being too patient and hesitating to buy at the right moment could become a problem because time may start eating into your savings and prevent you from buying any business.

CONSIDERATION

One great aspect to think about is your time. How much time do you want to spend on this. Are you a workaholic? Regular 9 to 5 person? Morning person? Evening person? These are all good question to ask yourself before you start your search. Do you know how you want to divide your time. It would be sad to get into a business and then figure out it’s not for you. Plus, know this will be useful in picking the types of businesses that might interest you.

WORK AND TIME MANAGEMENT

Time passes fast, but you already new that. Are you getting the most out of your time? Are you involved in activities in your business that perhaps someone else can do for you? Do you trust your team? Are you addicted to controlling every aspect of you employees work? These are all good question to ask yourself, which in turn may save you some time so you can concentrate more on how to further develop your operations.

A big part of success comes from having the right people working with you. You want to have people who are motivated, and not just doing the bare minimum. For this you need to take time to assemble your team based on stringent qualifications, and then treat them nicely and keep them motivated. Because if they see that they have a chance and a future with your company, they will most probably help you get to your goals faster with much less stress. When the right employee is treated properly, most likely he/she will go the extra mile for you every day.

EVALUATE YOUR PHYSICAL HEALTH

Being in business and profiting from it is fantastic, and you must be physically healthy to enjoy the fruits of your labor. Evaluating your physical health condition is an absolutely critical issue when you are considering buying a business. Or if you are not healthy enough, is there someone that you like, trust, and capable enough to help you out. Again, you must be sure you have got this base covered just in case. Small business can be extremely fragile object to handle, and you need to do the job the right way.

DISCLAIMER: The contents of this page are for entertainment purposes only. Please seek the advice of a lawyer/accountant/etc. before investing in a business. We will not be liable for the information displayed on this page in any shape or form. Buying a business involves risk.

Article By Lawrence Crown

President Of BusinessCommerceCenter.com (portal for small

businesses for sale advertising), Professional Business Broker,

and a Day Trader. Lawrence focuses on helping business brokers

advertise their brokerage services. Assist small business owners