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Buying an Exiting Business
A Message From Our Senior Broker
As someone who helps prospective and existing business owners for a
living, I am heartened by all the media attention aimed at helping
people find a job and survive this difficult economy. I'm concerned,
however, that there isn't more discussion about the option of buying an
existing business.
In the business brokerage industry, we equate buying a business with
"buying" a career or profession. For the unemployed and those worried
about their job security, buying a business is just as viable an option
as a traditional job search or starting a business from scratch.
Though it sometimes require a larger upfront investment compared to
starting something from scratch or conducting a traditional job search,
buying a business can provide you and your family long-term security
while paying you an immediate salary, covering your bank debt and
providing a small cushion to grow the business. It's also one of the
best investments you can make, as evidenced by its history of
outperforming both the stock and housing markets even during periods of
double-digit growth rates. When you buy the right business, you're
building something that has real value and can be resold
later--potentially for a profit. But those aren't the only benefits.
Here are six more:
- Immediate cash flow:
Taking on a business with existing customers can be extremely
beneficial. With a properly structured acquisition, the business
revenue should enable you to cover the cost of any bank loan, take a
reasonable salary and have a slight cushion for growth. This
scenario is a stark contrast to starting a business from scratch
with no immediate revenues, clients, employees or cash flow.
- Brand recognition:
There is a significant advantage when you acquire a business with
existing marketing, advertising, client contracts, trained employees
and third-party relationships. The business is established within
its trade sector and known throughout the community. This is an
intangible benefit that's almost impossible to create with a
startup.
- Bank financing:
Financing the purchase of an existing business can be easier than
raising money for a startup. The bank can see historical performance
and not just rely on pro forma financials or projections. If you
have industry experience to go with the business acquisition, the
banks know you have the business acumen to successfully operate it.
- Trained employees:
One of the most valuable assets in a business acquisition can be the
existing employee base. With the right team in place, business
owners can focus on growing the customer base or developing new
products and services. The work of finding, hiring and training new
employees has already been done, and you can use this as a
springboard for future growth. Plus, the entire business doesn't
rest on your shoulders, which gives you peace of mind should you
decide to take a vacation or a break from the action.
- Systems and infrastructure:
Many businesses will have systems that range from operating manuals
to complex IT platforms. Existing systems support the company's
operations and should be the foundation for future expansion. You
also have the outsider's point-of-view to spot and improve
weaknesses in the system.
- Training and transition:
Sellers can be invaluable in helping you transition into the
business, offering guidance ranging from specific training,
introduction to key clients and suppliers, supplying an employment
contract for future services, and in many cases, seller financing
for the business purchase.
Being aware of all the options during these tough
economic times will give you the leverage necessary to make good
decisions. If you've already been impacted by this economic meltdown or
you're fearful about an impending layoff, small-business ownership could
be an option. Pursue all of the avenues available and, if small
business ownership is a viable alternative, then seek the advice of
professionals and those who have done it before.
S McLaughIin
Senior Broker
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