| Buy a Business Instead of Starting One |
| Invention Development Advice - Ideas | |||
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Many experts agree that the safest way to get into business for yourself is to buy rather than start a business from scratch. Let's take another look at that and we'll see that it is both true and false.
Many experts agree that the safest way to get into business for yourself is to buy rather than start a business from scratch. Let's take another look at that and we'll see that it is both true and false. A business start up does seem to have a higher failure rate. This is often because of poor planning and preparation by the owner. If you think out and plan for your new business you'll have reasonable chance for success. You give yourself a better than average chance of success when you go through a proper planning process and surround yourself with capable advisors. You should do that whether you buy or start from scratch. It's false to the extent you decide to start small, perhaps even part-time and work your way up. You may want to start a business that lends itself to this model. If you do, it can work well as you avoid paying the potentially large upfront purchase price. Not many can pay cash for a business and are forced to take on debt to get started. Debt is always a bad idea. Let me say that again - debt is always a bad idea. Going into debt puts you in a difficult hole. After providing for all your operational costs you still need to make payments on the loan. Only then can you think about paying yourself. The banker will never be the last to get paid. This increases substantially your risk. It means that a bad market will put you out of business. Debt reduces many other options you might have had. It puts you into slavery with your lender. When we started a business we wanted to leave the life of a wage slave. Wasn't that a good idea? However, going into debt makes us a debt slave and that's even worse. In the right situation, buying an existing owner's business can make a lot of sense. A well established small business in a good market, purchased at a fair price, can be a good way to go. Don't buy potential alone. The business must have proven results. To determine whether a business is a fair deal for you will require a review of its financial records. Take a look at the last five years tax returns and talk with of the management of the business. You will likely be best served to have a business valuation done by a professional, a Certified Valuation Analyst (CVA). Before incurring the cost of a valuation you or you and your accountant should review the financial information to see if there is even a chance that this business will work before hiring the valuation professional. Small businesses with a track record of five or more years have a lower rate of failure. Take into account the economic conditions though. A bad economy can change everything. Consider how the business will weather a difficult economic situation. Some closing thoughts on purchasing a business. When you start a business you are on the offensive, building and growing. When you buy a business puts you are on the defensive. I'm not a fan of being on the defensive, are you? When buying, you take on the owners customers, employees, and culture. Let's see why that is difficult. It can be. You will have to unload the bad, unprofitable, or slow paying customers. You will have to trim out those employees with bad or low character, and the low performing ones. You also have to change the culture of the small business from the last owner's to your own. My own experience has shown that to take three plus years and it's never fun. I've taken this journey many times and it often seems to be easier to start a business from scratch than buy. So take the time before you buy, look at how many undesirable customers and employees there are. What is that culture really like? Don't just look at the numbers. You're about to be the boss and will need to run this business. It's a big investment of time and money to change the culture, employees, and customer group. Be wise and make a good decision. More information: Steve Schlagel is an attorney and CPA with over 30 years experience in small business coaching and teaching. This article on whether to Buy a Business is just one of many you can access by clicking here. If you want to know more about him or his services visit My-Small-Business-Mentor.com.
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