Cream of the Crop 1/Cream of the Crop 1.iso/BUSINESS/SBA62.ARJ/FSBA.EXE/F215.SBE

Text File | 1992-04-30 | 7KB | 136 lines

@131 CHAP 3

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             │         BUYING AN EXISTING BUSINESS       │
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           "We are surrounded by insurmountable opportunity."
            -- Pogo Possum

If you are going into business for yourself, you have no doubt given
at least some consideration to buying an existing business.  It is
a possibility you should not overlook, since doing so can have some
considerable advantages over starting a new business from scratch.
One of the main advantages, of course, is that buying an already func-
tioning business gives you a chance to start out with an established
customer base, which might otherwise take you several years to create.
Another is that it is sometimes possible to have the seller stay on as
an employee or consultant for a transitional period, to help familiar-
ize you, the new owner, with the operation of the business.

               HOW DO YOU FIND A BUSINESS THAT IS FOR SALE?

ADVERTISEMENTS.  Finding a business for sale in almost any field is
usually not very hard.  All you need do is look in the classified ads
in most major newspapers, and you will find plenty for sale.  Just
realize that most of the businesses that are advertising they are for
sale either have serious problems, or else are being offered at prices
that are out of line with the market, in hopes that someone who is not
too sophisticated will unwittingly buy them out at a premium.  The
trick with all these advertisements is to separate the wheat from the
chaff, which, as usual, means that "knowledge is power." Developing the
knowledge or information you need to make an intelligent purchase of an
existing business will generally require you to do two things:

      (a) a lot of homework, talking to people in the industry or in
          the market area to find out how much, realistically, you
          should be willing to pay for a business of the type you
          are interested in (based on its size and profitability);
          and

      (b) a lot of legwork, looking at different candidates, some
          of which you will need to explore in depth, perhaps
          getting rather deeply into purchase negotiations before
          you finally realize you don't want in.  The author and
          programmer of this program has had clients who have
          actually spent YEARS looking at businesses to buy until
          finding one that was actually a good deal (and wound
          up very happy with the businesses they finally bought,
          incidentally).  However, you may not have the luxury of
          waiting several years till the right deal comes along.

BUSINESS BROKERS AND REALTORS.  Often, when you respond to an ad
offering a business for sale, you will find that the person running
the ad is a business broker, rather than the actual owner.  These
brokers, who represent the sellers of a business, and usually get
a commission equal to about 10% of the sales price, can be very
good sources to contact in your search for a business to buy.  Of
course, representing the seller, they will be seeking to maximize
the sale price, and the seller may also tend to ask a bit more if
he or she knows the broker will be collecting a 10% cut out of the
pie.

LOCAL CHAMBERS OF COMMERCE.  Talk to the people at your local Chamber
of Commerce.  They usually know a great deal about the local business
community and may be able to give you some free leads to firms that
are for sale, perhaps before they are formally advertised as being for
sale.

ACCOUNTANTS, ATTORNEYS AND BANKERS.  Often these professionals can be
the best sources of leads to good businesses that may be coming up for
sale, even before they are on the market.  Many business people tend
to confide in their accountants and lawyers about things they would
not even tell their priest or psychiatrist, such as the fact that
they are planning to retire or sell out their business, long before
making any formal plans to put the business up for sale.  If you have
friends who are CPAs, lawyers or bankers, take them to lunch and tell
them what you are looking for.  Typically, they will have a vested
interest in finding a friendly buyer for a retiring client's business,
since they will fear losing that account if the client's firm is sold
to strangers who have their own CPA, lawyer or banker already.

Certified public accountants (CPAs) can be particularly good sources
for leads.  Having been one for most of my own professional life, I
can tell you that every CPA has a number of clients with "juicy" little
businesses that the CPA occasionally fantasizes about buying if the
client ever dies or decides to sell out....Visions of 6-figure incomes,
heavy cash flow, from a simple little business that only takes a few
days a month to run, waving palm trees in Tahiti, no more "tax seasons"
....etc., complete the picture.

But most CPAs (or lawyers or bankers) stick to doing what they do.
However, if you can find a CPA who is looking for a partner to go in
with him or her in buying out a client's business, and who would want
you to be the person who runs it day-to-day, with the CPA remaining an
investor for the most part, don't pass up such an opportunity.  In such
a case, you can generally bet that if the CPA is putting up his own
money to buy out a client's business, he has studied the business
carefully for years and feels that it is a real bonanza.  In short, the
accountant will have done much of the pre-screening for you already
in such a case, on his or her own time.

THE DIRECT APPROACH.  Often, if you see a small business that you think
you might like to buy, the simplest approach will be to talk to the
owner and see if he or she is interested in selling.  While the owner
may have had no serious thoughts about selling the business before, the
appearance of an interested potential buyer is not only somewhat flat-
tering, but may even cause them to decide to sell out to you.  Many
businesses are bought and sold in just this way every day.


              ADVANTAGES OF BUYING AN EXISTING A BUSINESS

In addition to the obvious advantages of buying an existing business
that were mentioned above, there are the following:

   .  You may be able to take a regular draw or salary out of the
      business right from the start if it is a profitable operation.
      This will rarely, if ever, be possible in a true start-up
      situation.

   .  Your risk is probably less when you buy an established,
      profitable business.  You KNOW that it has a viable market
      if it is already profitable.  Your main risks are that
      something will change (e.g., new competition, obsolescence
      of product) that will adversely affect the business after
      you acquire it.  Or you may simply screw it up.

   .  Simplicity in getting started.  You won't have to reinvent the
      wheel, since an ongoing business will already have facilities,
      operating systems, employees, etc.  Thus you can devote most of
      your efforts to maintaining and improving operations, rather
      than worrying about acquiring initial inventory, setting up
      accounting systems, finding employees, designing a floor plan
      for the executive washroom and the like.