Many entrepreneurs dream of starting their own business, but not all of them are brave enough to walk up to the first business for sale sign. If you’d like to live that dream, then here’s an idea for you: get an existing business for sale and purchase it. In actuality, purchasing an existing business is actually a good way to be a successful entrepreneur. You don’t have to have your own business to buy, sell, or start your own. Here are four reasons to think about purchasing an existing business.
Cash Flow – One of the reasons why many people pass on starting their own businesses is because they worry that they can’t afford it. If you’re a buyer, though, you’ll realize that most business owners have other sources of income besides their main source of “working” money. That’s why it’s a good idea to take advantage of this cash flow. When you’re buying an existing business, you can work with the business owners to get cash flow in place.
Business Brokerage – Another reason to consider buying an already existing business is because many of the “for sale” signs in neighborhoods don’t list all of the businesses for sale. In order to get information on businesses, a buyer must rely on a business broker to do the legwork. A good business broker will keep track of all the properties that are listed so a buyer can focus on the ones that are best for them. This is very important when you’re thinking about buying a new business. There’s not enough time to go looking at each and every one to find the best deal.
Market Approach – The other reason to consider a business sale is because the old owner was probably selling a product or service that no longer exists. When you take a market approach to looking at businesses for sale, you can easily avoid some of the hassles associated with trying to find quality companies for the market. You can use the business valuation services that are available to help you get an understanding of the earnings and expenses associated with the companies for sale. You can also evaluate the profitability of the business as well.
Deferrative Sales – There are some buyers who will only be buying because they have limited discretionary cash flow. In these cases, a business owner who is looking to sell might benefit from considering short sales and other measures to improve cash flow. A short sale involves selling a property to pay off a mortgage or outstanding debt. The new owner can often negotiate a better price and terms than the original owner with the help of an agent. It’s always a good idea to have an experienced real estate agent on your team when you’re working on a short sale, but they may only be able to assist with discretionary cash flow issues.
Broker Access – A broker is someone who works with sellers, buyers, and lenders. Because brokers represent many different lenders, mortgage companies, and other financial institutions, it’s likely that they know a wide variety of companies who might be interested in purchasing your business. Real estate agents represent a single lender, so their knowledge of local buyers is limited, if they have any at all. A broker is more likely to know more local buyers and brokers.
Brokers negotiate on your behalf, so it’s important to understand how they will communicate with potential buyers. Find out how much they’ll charge to work on your behalf. Does the broker charge a fee up front? Can they work on a contingency basis? Do they require a down payment or upfront payment from the buyer? This information is important so you know what the process will be when you decide to work with a broker.
Brokers can also help you with negotiating the purchase price. How do they determine the value of a business? What are fair market values, and how can buyers compare prices? All of these questions are important, because the fair market value is used to determine what the buyer will pay, as well as what the seller will pay, for a business. If the answers to these questions are unclear, then it’s likely the buyer you’re looking for has already found a buyer.