Buying a Business-
A New Entrepreneurial Trend
Not so long ago when a person
wanted to be their own boss, they did their research, saved their
money and eventually hung out a shingle for themselves. With
a lot of hard work and a little luck, these entrepreneurs achieved
varying levels of success.
How times change.
Across the country, the entrepreneurial spirit still lives. In fact, more people are striking out on their own than ever before, but how they make the jump from employee to owner is what's news today. Many of these new business owners are no longer starting from scratch. Instead, a significant number are choosing to purchase one of the more than 1.7 million businesses that for one reason or another are up for sale on any given day across the country.
So why are business acquisitions gaining in popularity? The main reason is money. Often the only feasible way to break into a particular field, such as a hotel or restaurant, is to buy an existing business. Start up costs for many types of businesses prohibit ground-up construction.
Many middle managers who have been the victims of corporate downsizing are forced to open their own businesses because they have difficulties finding a new job. These seasoned veterans are often highly successful in their second careers as business owners.
The advantages of acquiring an existing business are many. Here are a few points to consider:
Customers: Buy a business and you also buy its customers. The more customers, the more you will pay for the business. Still, you'll have an immediate cash flow and an opportunity to improve on existing business relationships.
Product: When you purchase an existing business, you usually receive whatever merchandise is on the shelves or in the warehouse. This will give you an idea of what sells and what doesn't and allows you to spend your capital on other necessary items such as advertising or payroll.
Employees: Once the business is yours, you can keep any or all of the business' employees. Seasoned, knowledgeable employees can help you overcome the early jitters and share with you any quirks or insider information that's vital to the business or industry. There can be apprehension by the existing employees, so this is an area of opportunity as well as concern.
Identity: Good or bad, existing businesses already have an identity and an image. You may have the opportunity to improve on an already shining image or you may need to repair and improve a tarnished one. Intangible assets such as an image are often one of the most valuable and overlooked attributes of a business.
The most common reason people state for not owning their own business is the lack of a down payment and little start-up capital. However, commercial real estate and business brokers who are knowledgeable about Small Business Administration (SBA) guaranteed loans have the ability to offer their buyers the option of obtaining a long-term, highly leveraged business loan for business acquisitions.
The SBA offers guarantees on loans made through qualified lenders, with terms that are very appealing to small business owners. Highlights can include: high loan-to-value; fully amortized loans with no balloon payments; terms of up to 25 years, depending upon the use of the funds; no prepayment penalties; and, competitive interest rates and fees.
As with any major financial commitment, it is important to consult experts in the field to protect and advise as the transaction progresses. Legal questions ranging from property lines, to labor union concerns to tax issues are a very real part of business acquisitions and necessitates the consultation of an experienced attorney and certified public accountant. A few dollars invested early on can save you money and grief down the road.
With prices ranging from a few thousand dollars, to a few million, opportunities abound for nearly anyone who wants to be their own boss. With careful shopping and more than a little prudence, a business acquisition can be the best way to be your own boss.
David W. Moore, Jr. Norfolk, VA (757) 640-7592
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