What are the Benefits of Buying a Profitable Business?
Do you plan to buy an existing business? Do you plan to start your own business? Are you thinking of buying a franchise? There are pros and cons for each of those options. If you do an analysis, you'll learn what many seasoned entrepreneurs have learned. The risk-to reward ratio is tipped in your favor when you purchase an existing business.
The benefits of buying an existing business include:
• Profitable - Buying an established business is less risky. As a buyer you already know the business is profitable. Sure, business plans and income projections look great on paper, but what will actually happen? With an existing business, you already know the actual performance of the business. You can look at the tax returns, profit and loss statements, etc and see what their profits are.
• The company's name - The ongoing benefits of any marketing or networking the prior owner has done will transfer to you.
• Existing relationships - With the purchase of an ongoing business, you will buy an existing customer list and vendor base.
• An immediate focus - When you buy a business, you can start focusing on improving and growing the business without delay.
• Trained employees in place - One of the most valuable and important assets of an existing company is the people. With the right team in place, just about anything is possible and you will have an easier time implementing growth strategies.
• Cash flow - Typically, a sale is structured so you can cover the debt service, take a reasonable salary and have a little left over to take the business to the next level.
Start-ups and franchises normally take two years or more to achieve a positive cash flow. The salary will be used to pay your personal expenses. With a start-up and a franchise your personal expenses are an additional investment into your business venture.
• Existing licenses and permits - Existing businesses have learned and acquired the necessary business licenses and permits. It just a matter of transferring those into the new owner's name.
• Training by the seller - Often the seller will help you in the learning process. An owner can show you the “ropes” of the business, introduce you to everybody and make sure it's a smooth transition. You avoid the trial and error of starting your own business.
• The owner may provide owner financing - The seller can become your "bank." Financing for the aquistion of a business has improved significantly in the past 3 months.
Can the money needed to purchase an existing business be equal to or less than the costs associated with a franchise? The answer is Yes. Call me to arrange an appointment to discuss your situation.
It is difficult to find a bank to loan money to a startup because banks have little or no security available in a start-up. It is easier to receive financing with a franchise, because the franchisee will use his/her money to finance the greater portion of the costs. The costs include the franchise fees, training, leasehold improvements,equipment, starting working capital and the money to pay for the losses until the franchise becomes profitable.
Finding the right business to purchase can be a daunting task without help. Assembling a team of experts, including a business broker, an accountant and an attorney will help you avoid some headaches.
Buying an existing business can be safer than beginning from start-up because startups have a high failure rate. The Small Business Administration (SBA) estimates that 56 percent of new businesses fail within the first four years.
If you buy an existing business, you'll improve your chances of success because many businesses for sale have passed the four-year mark.
Why would someone want to sell a successful business? There are many reasons - retirement, illness, relocation, burnout, illness of a family member, pursue other business interests, etc.
If you decide to open a business on your own, you will need to cover all the areas discussed above on your own. How long will it take to build your business before you can sell that business and breakeven on your investment? 5-7 years? 10 years or more? With a franchise you have a proven method if you ask the right questions.
How much time does it take for an owner of a franchise to sell their franchise and receive back their total investment. If you read the article titled “Before You Buy A Franchise…Read This”, you will gain additional knowledge and have an example that will allow you to determine how long you will need to own the franchise before you can sell the franchise and receive your money back. Here is the link to the article http://www.mckittrickandassociates.com/blog/2012/08/16/Before-Buying-A-FranchiseRead-This-.aspx
You will need to find an affordable location, search for suppliers and vendors and generate your client base. Advertising will be important because you will need to get your name out and develop repeat customers. This is where a franchise can be helpful.
You will probably need to hire and train your own employees and find an accountant to set up an appropriate accounting system and payroll tax accounts as well as track sales and inventory.
Your attorney will be a key person in helping you review leases, deeds, zoning and licensing paperwork and other legal documents.
Leo McKittrick is a business broker with McKittrick and Associates. He can be reached at 912-667-7355 or by email at email@example.com to discuss your options and see which one works best for your situation; start a business, purchase a franchise or buy an existing business.
What do you believe is the best way to be a business owner – start your own – buy a franchise or buy an existing business?