Biz for Sale! But Should You Buy?
Oct 7th, 2008 by admin
There is a magnetic allure in buying some things old rather than new. Think about existing homes or used cars. For homes, all the major work has been done, the landscaping is lush and the walls are painted. Just move right in! With a used auto, you get a vehicle that has already been through its accelerated depreciation phase and score a much lower payment to boot. A wise investment! But what about buying an established business? Is there anything to be gained? Should you go this route instead of going it alone - building from the ground up? Let’s find out.
Pros and Cons of Buying an Established Business
Pros:
- Buying a business that is already up and running offers you an expedited way to get into business.
- Some established businesses offer reduced risk and increase your odds of obtaining financing, because they have favorable track records and historical documentation.
- There is potential to make money immediately. Existing businesses often come with established accounts or customers.
- An existing business offers the new owner a chance to expand to other markets or diversify its product or service line.
Cons:
- For entrepreneurs who enjoy the challenge of building something out of nothing, an established business could prove to be less fulfilling than starting a new business on both a personal and business level.
- The upfront cost of purchasing an existing business can be substantial as compared to starting a new business. Bootstrapping is not an option in most cases.
- An existing owner/manager may be the reason for the business’ success. As such, by changing hands, a business may lose some of its momentum.
- Some customers/clients may be uncomfortable with the business being sold or the existing owner/manager leaving and, therefore, take their business elsewhere.
- Hidden problems – often tied to the reason(s) why the business is being sold. Do your homework to avoid any potential pitfalls!
Based on the pros and cons, whether or not buying an existing business is worth the investment will differ from entrepreneur to entrepreneur. Like everything entrepreneurial, it pays to do your homework. If you’re considering this route, here are some ways to find businesses for sale:
- Word-of-mouth through colleagues, business associates, friends and family – people in your network.
- Classifieds – both on and offline. Look under ‘Businesses for Sale’ or ‘Business Opportunities’.
- Business brokers who are listed in the yellow pages or online. I highly recommend checking with the International Business Brokers Association, the American Business Brokers Association or another state or regionally-affiliated organization.
- Online buy and sell networks and communities. Try eBay, BusinessBroker, BizQuest or BizBuySell.
Did I mention doing your homework? When it comes to buying a business, it doesn’t pay to cheat or rush or skip over the fine lines or rush. Take your time. Make an informed decision. Don’t rush!
A buddy of mine owned a diner on Staten Island. He built the business up from nothing and then sold it. He got a decent down payment and held the mortgage for the difference. When the guy he sold it to failed to make his sixth consecutive payment, he repossessed it.
My buddy built the business back up and resold it four years later. The same thing happened. He reclaimed the business. He swore he’d never sell the business again.
My point? Sometimes it’s not location, location, location. It’s knowledge, expertise, and good judgment. My buddy had the knack; his buyers, not so much.
[...] getting that lump of coal we’ve all been warned about. Read Crystal’s article “Biz for Sale! But Should You Buy?“, where she stresses the importance of doing your homework before you make this important [...]