Abundant literature exists on starting a small business from scratch.  But there is little on buying a going concern, not to mention selling one.  I will try to shepherd you through the maze of buying and selling a small/medium sized concern.  You will meet the “naive, innocent” buyer, the “honest and overboard” seller and the broker “ever-concerned-for-your-well-being”.  Also covered will be the role attorneys, accountants, bookkeepers, bank consultants, landlords, and other players.

The buyer

You may want:

  • Independence and security;
  • And investment;
  • To satisfy a dream or ego trip;
  • A job;
  • Retired look to relieve boredom;
  • To climb off the corporate ladder and go it alone;
  • To give up being a housewife;
  • To buy companies, build them up and sell them;

 

Most people want a sound business with a track record and provable figures. Successes and failures occur mainly because buyers were unprepared for the minefields.  US surveys tell us that of the Hundreds of Thousands of Americans buying or starting businesses each year, 60-70% select the wrong type.  Most have not asked the crucial question:  What business am I best suited for?  Instead they chose a business easy to get into or which looks highly profitable.  Choice is critical.  It should be in a field about which you know something.  Don’t buy if you must rely completely on staff expertise.  Don’t go for hairdressing if you are not a hairdresser, owning a restaurant if you can’t cook or running a workshop if you have no mechanical back ground.  NO matter the profits, you are completely in the hands of the staff and nine times out of ten, you will find the seller has the expertise. 

Why buy an existing business?

You don’t have to wait to establish profits, you have and income from day one.  The average time to establish a new business and get it to profit is approximately 18 months; the success of the business is proven; your drive and enthusiasm can go to raising profits as opposed to trying to get them started; there are no start-up problems – you have customers, employees, suppliers and physical plant and premises.  Often the seller is prepared to provide some financing at a lower cost and with less security than would be required by a financial institution.  Sellers sometimes allow purchasers in to verify certain aspects of the business; this gives an opportunity to see if the business suits you.  You may be able to buy a profitable business for less than it would cost to set up a similar concern.

Why not buy an existing business?

The business may not be exactly as you would like it to be;  size or location could be wrong;  you may be buying problems of someone else’s creation;  you may not agree with the value put on the “goodwill” of the business.  There are really only a few cases where it may be better to start your own as opposed to buying a going concern.  They are:

  • When you have a product so good it must be a winner;
  • When you are able to secure prime premises with enormous passing trade so that virtually any business would be a winner.
  • You are an experienced entrepreneur.

 

Even so, you would need to tread carefully.