Rayanne Thorn: Jobseekers: Understanding the Candidate Experience
LOOK: Mystery Man Gives Canada Animal Shelter $25,000 In Random Act…
Buying a Business: 5 Things You Need to Know
Buying a existing business can be easier than starting one from scratch. How to find the right opportunity, raise enough money, and get a good price.
Posted 5/ 11 10 at 10:15 PM | 5 Things You Need to Know, Money, Sales, Leadership, Starting a Business, Home-based Business, Taxes & Accounting, Legal Issues, Online Business
Text Size:
A A A
With increasing signs that the economy is improving, and the credit markets beginning to loosen up again, the business-for-sale market is sure to see an uptick. In fact, the number of businesses sold during the first quarter of 2010 rose 6.3 percent over the fourth quarter of last year, according to BizBuySell, an online marketplace for business postings. Sometimes, buying an existing business can be a lot easier than starting one from scratch. What are the best ways to get started? Here are five things you need to know.
1
Know what kind of business is right for you.
Business buyers tend to "fall in love with the profits, not the product," says Barbara Taylor, co-owner of Synergy Business Services, a full service business brokerage firm in Bentonville, Ark. While the financial performance of any business is a paramount concern for any buyer, it could be just as important to find a business you are passionate about. To help you through the screening process, Taylor says, ask yourself some basic questions:
- What kind of lifestyle do you want? If you'd prefer to relax in the evenings and on weekends, then a business with retail hours may not be the right choice.
- How much do you need to pay yourself in owner's salary? If you're buying a business to replace income from an employer, then you'll probably want to replace your former paycheck at a minimum.
- In what industries do you have particular expertise or interest? Many people will be relying on your ability to successfully run the business as the new owner, including the employees, suppliers, the seller, if they carry back a portion of the purchase price, as well as you and your family. Aligning your experience with the industry of the business lets you focus on daily operations and flattens the learning curve.
- What skills do you bring to the business? Consider what skills will need to be covered by the talents of other people within -- or outside of -- the organization. It's an added bonus if your skill set will help take the business to the next level.
2
Line up your financing ahead of time.
Given the crackdown on easy credit, it's likely, if not certain, that you will be asked to verify your financial ability to purchase a business upfront -- particularly if a business broker or intermediary represents the seller. "No one wants to waste time with a buyer who can't close the deal, nor do you want to waste precious time investigating a business that you ultimately can't buy," Taylor says. With that advice in mind, here are some questions you should ask yourself:
- What amount do you have for a down payment?
- What sources will the down payment come from (cash from you, remainder from a bank loan or family member)?
- What additional sources of funding do you plan to use (self directed funds from retirement account, sale of stock, home equity)?
- Will you be asking for seller financing? If so, what terms will you be asking for?
- Can you furnish a statement of personal net worth and resume?
3
Assemble a team of professionals.
Buying a business, regardless of its size, can be a complex process. "You will want to enlist the help of a qualified attorney and a certified public accountant, as well as any other trusted advisers," Taylor says. For instance, make sure your attorney includes corporate transactions among his or her practice specialties. You will be relying on legal counsel to draft documents like a Term Sheet for submitting an offer, and an Asset (or Stock) Purchase Agreement for purchasing the business. There may be other documents such as leases, patents, and contracts with customers and suppliers that you will want legal counsel to review as well. In terms of the numbers and financial side of your vetting process, select a certified public accountant who has experience in analyzing several years' worth of financial statements and tax returns provided by the seller. Your accountant should also understand any tax consequences associated with the purchase and structure of the deal.
4
Place a value on the business.
There will be differing views on what the business is worth. Regardless of whether the seller has a desired asking price, you will want to come to your own conclusions about the value of the business, Taylor says. "At the end of the day, a business is worth what a willing and able buyer -- given all the available information -- will pay," she says. So be ready to negotiate and bridge the inevitable gap between what you think the business is worth and what the seller wants. Most businesses for sale on the small-business marketplace use an asking price that is based on a multiple of Seller's Discretionary Earnings (also referred to as Cash Flow or Owner's Benefit). You and your accountant will need to audit the books to derive the amount of the S.D.E., which is typically arrived at by taking pre-tax earnings and adding back owner's salary, interest expense, discretionary expenses like owner's auto and travel, non-recurring expenses, and non-cash expenses like depreciation. The multiple you apply to the S.D.E. can by found by using comparables or data from other transactions from the same industry.
5
Start looking and spread the word.
To see what businesses might be available to you, visit the primary business-for-sale websites, such as BizBuySell or BizQuest. You can also identify the top business brokerage firms in your area by attending events at your local Chamber of Commerce or other business organizations. You can look through their available listings, which will likely be online. You should also spread the word that you're looking to buy a particular type of business. "Telling people that you're 'looking for a business to buy' really tells them nothing," Taylor says. She suggests saying something more along the lines of, "I'm looking to buy an established business that does specialty subcontracting work for commercial construction projects with no more than 50 employees and at least $1.5 million in annual sales," which narrows the field considerably, and lets people know what to look for. When you know what your key filters are, you can then send a detailed e-mail or letter to local business brokers outlining your background and interest, parameters for a suitable business, available funds for a purchase, and timeline for taking possession. After that, the key is to do your homework to find the best fit for you. "The more you know about the process of buying a business," Taylor says, "the more successful the outcome."
Getty Images
- 'Marriage Penalty' Could Make Costly Return - CNNMoney
- Oil Rises on Optimism for Cliff Deal - FOXBusiness
- Dow 2012: The Studs and Duds - InvestorPlace
- Turning the Corner: Why 2012 Wasn't as Bad as You Think - The Motley Fool
- World’s Longest High-Speed Rail Line Unveiled In China - IBTimes
- FORGET THE DEFICIT: Here's The Real Reason Liberals Want To Hike Taxes On The Rich - Business Insider
- CEOs to Fire in 2013 - 24/7 Wall St.
- DailyFinance Market Minute - DailyFinance
Comments (Page 1 of 1)
Want to take your dog to work? www.WoofGangBakery.com -- A Treat of a Franchise!
While many are looking to buy a company with a windmill of cash income already in the making, in this economy it's just not always the case.
Buying an established business these days can save the buyer many thousands of dollars by not having to build the infastructure from the ground up. Not to mention creating a Brand name and location awareness. Marketing and obtaining new traffic is a costly event.So even if a company isn't having that windmill of cash profit that we all would love to just walk in and enjoy, the foundation that you would have had to spend much time and money on is already in place. With a new owners expertise and know how, they can do some tweaking and get those numbers flowing the way they should be. And, they would most likely get that struggling business for a large discount. It's the 'structure and foundation' that you want to buy. Saving you much time, frustration and money. Any business that turns a profit wants top dollar! And, you walk into your new business, deep in debt. If your truely passionate and knowledgable in the industry your seekign, there shouldn't be any worries as to wether you can turn a struggling laundrymat around, or get that lawn care company new customers. But you got it at more than HALF of what you would pay and the the months of foot work is already done, equipment is already in place and more than likely you already have Brand awareness to the general public established.
Say you were not interested in owning a brick and morter type business due to all the zoning issues, realestate and leasing issues and liability and insurance issues. What's left? Not much, except the largest business platform known to man...THE INTERNET!
While the 'Brick and morter' business are spening tons of cash to stay open, the internet can be ran from a home office or anywhere you can pack a laptop and have a cell phone! And millions are made every day.
No leases, no liability insurance, no code inforecment,no parking issues, you don't have to show up at the office at any certain time and you have MILLIONS of people you can market to with a click of a mouse!
I currently have a Online Dating Community available for Acquisition.
http://www.MateMakers.com is now for sale due to other interests. Now is it making millions like Match.com-NO but the again it won't cost you $500MM either.
PlentyofFish.com sold in Feb 2010 to Match.com for a reported 175 million dollars! Who has that kind of cash?!?!?
Online dating is a Billion dollar business. So when websites communities like MateMakers.com is available, it's an opportunity to get in the game for a MUCH lesser amount of investment. And with the right team, one can build that community to a large community that can bring in a large windfall.
Anyone interested in MateMakers.com's acquisition should contact Brian Travinski at topgunmedia@aol.com or 954-599-3707
You are correct about this. It's like buying distressed property. it's the prefered purchase today. Becasue buyers know they can fix it up and give it some tlc and it would be a great home, but they got it for a FRACTION of what they would have gotten a beautiful home. Same applies to some businesses.
Some business buy out other businesses for their customer list. OK, that's a different deal. They'll have to fork over the cash.They're taking the easy way out instead of earning their cuctomers and clients, they just buy them. But that isn't the case for someone starting a business with limited capital.They don't HAVE millions to shell out! So, in turn, you buy an establish business that already has months of foot work already done, they have a marketing presense, websites,and some brand awareness and you run with that saving you months if not years of building form nothing. AND you get it fo pennies compared to walking into a businessthat flurishing and they want a mint for it. Your already heading in the wrong direction being so deeply indebted from the moment you sign your name on that dotted line.
And I also agree with you about the internet. while you do still have to obtain a programmer and do some creative marketing, the costs are FAR lower and the profits can be staggering! You don't have to sit and wait for your phone to ring or someone to stuble upon your store front, there is potential customers every second of every day 365 days a year. You can make money while your SLEEPING! And even if your not an Internet guru, you can easily hire someone or a firm that is and merely give you input as a team.
I went to your MateMakers.com..nice site....what is your asking price?
l have just 17 males horse and 28 femeles horses to sale.