Buyers Ask Questions
According to some, owning your own business, has now become
the new American Dream. Almost everywhere, anyone can own their
own home. (your results may vary...) Even those from other countries
come to the US with the American dream of having their own business
and building their own fortune. A house comes later.
There is probably nothing so scary as buying someone's business.
It's not like buying a house. If you overpay on a house, the
market will catch up and you will break even. If you over pay
on a business, you will either sink or swim. How long can you
The largest question on every buyer's mind is how much
is it worth?
Well, who's asking and who's paying? If it is your money,
a cash transaction, it is worth a different price than if the
SBA is guaranteeing the loan and putting up the funds. If you
are only putting up 10% of your own funds, it may very well have
a different value.
If you do not understand valuation, hire a broker to evaluate
the business for you. If the broker is selling the business for
the seller, ask how he arrived at the value. (ask nicely!) If
you are just starting to look, buy some books or valuation programs.
A few hundred or a few thousand dollars spent now will save you
much time and money later on down the road.
Do I need a lawyer?
Yes. Anyone that tells you no, ask for it in writing. The
answer is still YES. Legally, no you don't need a lawyer. But
yes you have to have one. Something will go wrong sometime, and
you need a logical paper trail to follow. If you do have a problem
later, you will get a lawyer then, and I want it on record that
I recommended you seek competent legal counsel.
Do I need a business broker?
Are you buying or selling? Do you go to the Casino to gamble
or just throw $20's out the window as you drive home on a Friday
evening? Of course I'm going to say you need a broker! This is
a broker site!
There are many very good sites out there to assist in the
buying or selling of a business. BizBuySell is one of the leaders
with a lot of help for both sides. They are as impartial as you
can be as they do not get involved with either side. You can
test the waters at a site like that to sell your business or
explore the businesses for sale.
A broker's role is not driving you around showing you businesses
until you say "Yup, I like that one..." A broker doesn't
have time for that. He/She is spending their time looking for
quality sellers and qualified buyers. Perhaps one of the reasons
that only 10% of the businesses for sale ever sell, is that perhaps
only 10% of the buyers are actually qualified to buy...
A broker may be representing the seller, the buyer, the transaction
or is merely an intermediary. You need to ask up front and GET
IT in writing. Local laws and customs vary.
Should I start a business or buy one?
Which do you have more of, time or money? Most new businesses
will take 30 months to show a profit. During those 30 months,
you need to be able to put ALL your time and energy into the
business. You need to be able to feed the business more money,
carry the expenses and not pay yourself. If you have employees,
they need to be paid. Many businesses break even with existing
expenses at the 18-24 month mark.
After the business is showing a profit, it can take another
12-18 months to recoup the losses of the first two years. Then,
you are even. From that point on, it's all gravy!
So, which do you have, time or money...
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