by Glen Cooper, CBI, CBA, BVAL
Buying a business is the right thing to do for some people.
In the next five blogs/podcasts, I’ll discuss all of the major issues about buying a business, especially in today’s opportunity-filled market.
This blog/podcast is about what you, the individual buyer, might want, what you should expect to get, and how you should go about doing it, if you decide this unique and special “buying-a-business” path is for you.
Those of you who are individual buyer prospects are usually looking for a business that will employ you as owner/operator. Because you are investing your hard earned money, you want to know that it’s worth it. You want to “run your own show,” an unparalleled personal growth experience. In Maine, especially, we buy businesses that improve our lifestyle. In some cases, it’s more than lifestyle—it’s a personal mission! We intend to leave our mark.
Can you reasonably achieve these objectives with a business purchase? Can you do it now, during a recession?
Yes, you can!
What You Want
Job: Owning and running a business is usually a full-time job. It offers unparalleled freedom of action. You may work very hard, but you will enjoy freedom that no salaried position can give. That’s worth a lot.
Investment: Owning a business offers a great return on investment. A purchased business should return in excess of a 20% pre-tax annual return on your cash invested in down payment and working capital. There are also legitimate expenses which, when paid for by your business, will lower your cost of living. This is often left uncalculated by owners.
Personal Growth: Owning and running a business makes you smarter! And, who among us doesn’t want to be smarter? Working on, and in, your own business will challenge you in every way you can imagine. Most of us don’t grow until we have to. Necessity is the mother of invention. Owning and running your own small business requires you to learn “Street Smarts 101.” It puts you on a personal growth regimen.
Lifestyle: In Maine, owning a small business is “the way life should be.” It really doesn’t matter precisely which service you provide or product you make, distribute or sell. It’s your chance to use the skills you love. It’s your chance to do the part of the job that you like and hire someone to do the parts you’re not so good at. If your business is located near lake or ocean, forest or mountain, (as almost all in Maine are!), it really does allow you to experience a unique “lifestyle.”
Legacy: Making a difference is an everyday experience when you own a business. Your family members, employees, clients and customers are all looking to you to set the pace. Solving business problems always presents an opportunity for deeply touching someone’s spirit. Who doesn’t remember a teacher in their life that made a difference? Business owners are always teachers. It happens at the workplace, but also in the home. Nothing will instill the “entrepreneurial spirit” in someone else like watching you succeed at running your own show.
What You Get
So, what do you get, specifically, when you buy a business? Why not just start your own business? Wouldn’t that be more fun? Aren’t you just buying someone else’s problems?
For some, starting their own business is the only way to go. Those start-up years can be exciting. But, it takes more time to get going when you start your own. It’s riskier—the chance to fail is much greater. It also costs more, not just in time, but in lost financial opportunity. I know this from personal experience.
In 1981, my wife and I had a chance to buy what was then the most successful business brokerage firm in Maine for just $125,000. Instead, we started our own firm, Maine Business Brokers, largely for reasons of ego (mine, of course, not hers).
In just the first few years, we made little, but the firm we DIDN’T buy made a lot. I can say now, that the decision NOT to buy that firm cost us more than $1 million in lost income. We have eventually succeeded in our “started-from-scratch” company, but it took many more dollars and years than it should have.
Buying an existing business gives you a leg up—several, in fact.
Immediate Cash Flow: A going business provides customers and/or clients that are ready to buy from you the first day. No waiting. Vendors are frequently willing to extend credit to a proven business more so than a new one. A “turn-key” business is what you get. Instead of starting from scratch, which can chew up mounds of working capital before the first customers and clients even realize you exist, buying a business provides immediate cash flow.
Known Market Position: “Location, location, location” can be more than just a reference to the right real estate choice. It’s also a position in a business market—a “piece of real estate” in potential customers’ minds, if you will.
In a purchase, you know where you stand. In a start up, whether or not you will be able to create such a position is a complete unknown. In selling businesses, there is always major value when a business is “dominant in its market.” Buying a business gives you this known market position.
Working Systems: Don’t underestimate the importance of operating systems that make it all happen. In a successful, established business, these systems are in place.
Remember the last time you did something you never did before? Well, when your money is on the line, you want a business with proven systems, not a first-time-out experience. Buying a business gives you working systems.
Trained Employees: It takes months to train even one employee. Even if the employees aren’t perfect (hint: they NEVER are!), at least existing employees can get from opening to closing each day, probably even without you.
There is an unrealistic fear among buyers that employees will abandon a new owner. In truth, when an existing business is sold, employees often respond with great enthusiasm to a new owner’s arrival. They are eager to tell the new owner their ideas. The good ones see it as a second chance for a new start, for them and for the business.
Seller Assistance: After the tensions of the purchase and sale process, the seller may very well be a fountain of wisdom, energy and help. Even if you don’t follow all of their advice (they don’t expect you to, anyway), it is still worth listening to. They know answers to questions you forgot to ask before you bought—ones that it might take you years to learn if you were starting from scratch.
And, did we mention seller financing? Yes, sellers will often even “play bank” for you—becoming a “partner” in your success. There is nearly always a good reason to take advantage of a seller’s assistance.
So, why buy a business? Buying a business is exciting! You get a job and an investment all rolled up in one, with an opportunity for personal growth, a unique lifestyle and a chance to establish a rich legacy for yourself and your family.
The advantages of buying an existing business vs. starting one are immediate cash flow, known market position, working systems, trained employees and seller assistance.
But, before you start, you must get clear about who you are and what you want to do.
What’s Next?
In the following blogs and podcasts on this subject, I will tell you what RESOURCES YOU NEED before you start, 5 QUESTIONS you should to ask when you make your first contact with a business seller or business broker, how to follow a VALUATION STRATEGY that will put you in charge, and what NEGOTIATION STRATEGY you must adopt to get your best deal and keep you legally safe.
I would also point my readers to Richard Parker’s BizQuest blog at http://blog.bizquest.com/2009/04/buying-a-business-tips-and-updates.html. He provides many nice tips on buying and selling and I’m happy to link with him.
Tags: business opportunity buying, Buying A Business, buying a company, for sale maine business, how to buy a business, maine business brokers, maine businesses for sale, why buy a business
