Buy A Business Blog

Here is a very informative article from Hub Pages about factors that can increase the value of a business. You can’t value a business just with numbers; you have to look at the operation itself and those aspects that make it unique – uniquely strong or uniquely weak. One great question that is listed here is to ask what makes the business expensive to replicate. Does the business you are considering have anything that other similar types of businesses can’t replicate – patents, trademarks, a great location or a great reputation? If so, it may be worth it to you to pay a premium over and above the valuation that you calculated.

Here’s the link: http://buyabiz.hubpages.com/hub/small-business-value

In this article from the Small Business Administration, franchise expert Joel Libava discusses some of the most important financial aspect of buying a franchise. Libava recommends you hire a franchise consultant to help you determine how much you should spend on the franchise – and how much of that money should be from your own savings and how much should you borrow. One point I found interesting is that banks are more willing to lend individuals money to buy a franchise than other types of small businesses.

Here’s the link: http://www.sba.gov/community/blogs/buying-franchise-%E2%80%93-how-determine-what-it%E2%80%99s-going-cost-you

Perhaps the best reason to buy a business instead of starting one is that the person who knows the business best – the seller – has a vested interest in your success. This means that when you take over you will have the best coach in the world helping you to get started.

In most small business sales the owner will provide some financing. So whether they like it or not, the person whom you bought the business form will still be connected to your business until you finish paying him off. Your success is very important to them. No such support system is built into the start up process.

The amount of training, and the time allotted for it should be negotiated as part of the overall deal you strike with the seller. Depending on the complexity of the business, a certain amount of consulting may also be part of the deal. So when you sign on the dotted line you should know the extent of the training the seller will provide and for how long.

The trial and error that most start ups go through can be very expensive and in some cases the new business runs out of money and time before they figure things out. The training provided by seller will shorten your learning curve thereby significantly lowering your risk. And lower risk is another great reason that buying usually beat starting a business.

But don’t get too relaxed – you goal should be to become independent of the seller’s training as soon as possible. The sooner you can do that the sooner you can lead the business in new and exciting directions.

In this article by Mark Robotham, give you a list of questions to consider when buying a business. He lists here all the issues you and your advisers should check into during the due diligence phase. One item mentioned that I think is often over looked when evaluating a business is “customer diversification”. How dependent is the business on just one or two customers. Most experts will say that if one customer accounts for 20% or more of a business’ sales that this should be considered a red flag. There may not be anything you can do in the short term to correct that. But realize that does increase your risk and should be considered when valuing a company.

Here’s the link: http://www.stuff.co.nz/business/small-business/7554315/Advice-on-buying-a-business

Here is a short article that gives a good over view of the legal issues involved with buying a business. Obviously you will hire a lawyer to help you with these items. But even in those areas where you will rely on professionals – lawyers and accountants – you should still have some basic understanding of the issues. Although the author is from California and refers to California law, the information in this article pretty much applies no matter where you live.

Here’s the link: http://www.californiabusinesslitigationattorneyblog.com/2012/08/buying-a-business-common-dangers-and-pitfalls.html

Here’s a short article in which business consultant Richard Parker discussed the biggest mistakes he see business buyers make. Parker writes that by far the biggest challenge the buyer faces is choosing a business that is right for them. He recommends that you only buy a business if there is a match between your strongest talents/skills and the talents and skills that are most important to that business. If you strong suit is sales but the business you are considering lives and dies on efficient operations, then it is probably not a good match for you.

Here’s The Link: http://www.johnmartinka.com/?p=675

It seems like every day there is a new survey or study announcing how little banks are lending to small businesses these days. Well, in truth getting a bank loan to start or buy a small business was never easy. But now it is even harder.

This is another reason why buying an existing business is such a smart choice for many people who want to go into their own business: the buyer is working with the most motivated lender in the world – the business seller. Now, to be sure some business owners want all cash when they sell. Or more precisely, the seller HOPES to get all cash. In most cases the business seller will become more flexible when he can’t find a buyer with the ability to pay cash.

Depending on which study you read, somewhere between 70 and 80% of all small business sales ($500,000 and under) include some level of seller financing.

But don’t get silly – you can’t buy another person’s business from them for nothing down. Some sellers will require as much as 80% down, some only 30%. Most will fall somewhere in between.

But the point is that most small business sellers are willing to work with a serious buyer on the financing. It is the most overlooked source of funding there is for people wanting to own their first business. If you come across a seller who isn’t willing to finance, then that isn’t the business for you. Move on. There are always plenty of good businesses for sale. But don’t forget about that all-cash seller. Check back in a few months, if they haven’t found a buyer yet they may become much more flexible.

Most of the time I link to discussion groups to point out the mistakes in people’s thinking. But this discussion is actually a very informative, fact based exchange.

The “opportunity” to buy a failing business on the cheap is pursued by a lot of first time business buyers. Usually it is a mistake. The discussion linked to here goes into some pretty good detail about how to value a business that is losing money – very informative for those of you inclined to buy a business that is losing money.

The unique thing about this example is the restaurant in question is a corporate-owned location and the buyer is the manager. She would buy this existing unit instead of buying a brand new franchise. The question that I have is this: If the parent company can’t make this location work, what chance does a first time franchise owner have? Let me know what you think.

Here’s The Link: http://www.48days.net/group/realbusinesssolutioncenter/forum/topics/business-valuation

This is the second of an ongoing series where we will discuss the advantages of buying a business over starting one.

In the last post we discussed the first advantage: you will have immediate income. Having revenue and profits on day one isn’t just a luxury; it does a great deal to lower your risk. And lowering your risk is a theme that will come up again and again in this series as we compare buying to starting.

The second advantage of buying also lowers your risk – the fact that the business has a history. And we can learn a lot from history.

As opposed to the unknowns (and high failure rates) of starting a business, an existing company has a real track record that you can examine. You will be able to thoroughly examine the financial records, tax returns and leases of an existing business.

Also, you will be able to more accurately judge the strength of the competition since the company you are considering has dealt with them on a daily basis.

The quality of the location and traffic of an existing establishment is known and has been proven over time – as opposed to a start up were the quality of the location is at least somewhat unknown.

In addition, as you study a business, it’s possible that you will be struck with new income generating ideas, niches that have been overlooked or weaknesses in the competition that can be easily exploited. Since you are looking at an actual business or competitor, ideas (as well as facts) can be assessed in much more realistic terms.

If you are just “thinking about” starting a business (meaning it’s just a vision at this point) than everything is much more speculative and theoretical – and making the correct decisions will be much more dicey.

Sometimes the most valuable information you get from a seller relates to their mistakes:  the things they tried that didn’t’ work even though they sounded like great ideas at the time. You can benefit from their experience and avoid some of their mistakes. But if you start from scratch, all the mistakes will be your own.

I came across this discussion in Yahoo Answers and though it was instructive. You will notice it begins with the questioner asking an extremely complex and open-ended question, basically “Should I buy this business?” And of course there was no shortage of anonymous people willing to jump in and offer their “expert” advice.

Nothing against the individuals who took the time to submit a response, I’m sure they were only trying to help. But the question of whether or not you should buy a particular business can’t be answered in a forum like this.

When a question like this comes up there are generally two types of responses. The first type is a meaningless statement of the obvious, “You need to hire an accountant”.

The second type of response is the “LET ME TELL YOU – IN DETAIL – WHAT HAPPENED TO ME” type of response. This is response is also pretty useless when it comes to complex issues. We don’t know anything about the person providing the answer. We don’t know if there situation is comparable to ours. And we don’t know if there story is even true.

Q & A forums are good for answering questions like “What’s the definition of cash flow?” or “Do business brokers have to be licensed?” But to boil down the process of buying a business to asking a groups of anonymous people “I want to buy this business, what do you guys think?” is silly at best and dangerous at worst.

What about you? Have you tried posting questions about buying a business in a forum? Did you get any good advice?

Here’s The Link: http://answers.yahoo.com/question/index?qid=20120811040635AArrwlf