BUYING A BUSINESS
You have probably heard time and time again that owning a business is the "American Dream." From a statistical perspective it is also an American reality. According to a recent study, more businesses are owned in the United States on a per capita basis than any other industrialized nation in the world.
There are two ways this is done. One is to start your own business from the ground up. The second is to acquire one from someone else. The purpose here is to provide an overview of this second option: buying a business. Note that it is intended as an "overview," not a complete discourse. Entire books, libraries of them, have been written on the subject. In fact, full careers exist solely to provide guidance and assistance in buying businesses. So this report should serve as more of an outline--a starting point.
Buying a business may be one of the largest investments you will ever make in your lifetime, both from a dollar standpoint and a time standpoint. Running a business usually takes up more of your waking hours than anything else, so the time factor may be even more important that the money spent.
Therefore, the consideration of buying a business should involve several issues: weighing the advantages / disadvantages of buying; understanding that eventually the asking price of a business is not an exact science; deciding what questions you should ask the seller; and determining the best way to structure the purchase from a tax perspective.
Weighing The Advantages And Disadvantages Of Buying A Business
If the business is in good shape, buying results in a faster, smoother flow. All the initial mistakes have already been made, and corrected. Employees are taken in place, they are trained; vendors are in place, presumably the best and cheapest; numerous business relationships have been made; customer or consumer lists have been set-up; and various sales / expense patterns have already been established which makes for easy planning, budgeting, and forecasting. A more predictable cash flow is possible, and owner's withdrawals may be more predictable from the start.
If the business has problems, the negative patterns that already exist may be hard to correct: employee attitudes and work habits, negative customer goodwill, and vendor relationships to name a few. There may be hidden future problems coming up which the owner knew about but you don't. Examples: a new competitor is moving in; a major client is moving on; negative technological development. Also, relatively large increases in gross revenue may be more frustrating to achieve on a dollar cost basis than with a start-up venture. Maturing businesses tend to have flatter growth curves.
Before you buy a business, make sure you are doing it based on a crystal clear, analytical basis. Does the business in question match your experience, interests, and personality type? Are you trying to "buy a career?" Because if you are, that may be the very last reason to buy a business.
For additional information, please refer to the section "Sell a Business" elsewhere in this website, which gives a perspective from the seller's side that can be very useful to you from a strategic standpoint when you are considering buying a business.