Some experts are saying this is the best time in recent history to buy a business. If you have the means… or maybe just the guts (you can buy businesses without paying a dime), then here are strategies from the TPE community on how to get the deal done:
1. Consignment
How To Buy A Business: A few months ago I entered a deal with my boss as the investor in a project I initiated, separate from my day job. My boss has zero interest in the accounting details of this project & is reluctant to pay on various aspects, effectively tying my hands. I want a career in publishing & production, so suggested he consign a bulk of product to me as a distributor: I’ll handle the biz details, he’ll break even & more, & I’ll do reprints under my company name … all without capital up front!
How To Buy A Business: When you get ready to buy a business, you have to have a plan with what you are going to do with it. To have that plan you need to know what talents and skills are in your wheel house. An odd phrase that refers to things you are really good at. What do you bring to the table that will make it successful. Business is driven by the people who run it. Have a plan and buy a business that matches your strengths. Makes life easier all the way around.
How To Buy A Business: Start a publishing company. A simple news letter about your niche or industry. Start an off line newsletter that develops relationships and establishes you as an authority in your field. This will start attracting a lot of business and help you expand as well. The best part is that you only have to do it once; it sells itself over and over again. Off-line print is crucial because it adds value to your newsletter. Electronic PDF files and RSS feeds are nice but too easily ignored or copied.
How To Buy A Business: Be very careful and skeptical of buying an ecommerce website business on any of the auction sites or other sites that put such sellers and buyers together. It is very easy for a dishonest person to buy a url, create a quick website, photoshop some financial documents showing strong revenues and then sell the site. Many, many of these offerings are nothing but scams.
How To Buy A Business: Passion is a factor in the buying or starting a new business. You represent the product or service and the passion that you feel is the passion created. If your heart is not into the project, how is it that you feel you can persuade or motivate others to follow or buy? Other elements will always have to be considered, but the one main factor is your belief or feeling behind what you offer. There is much passion with this tip I offer.
How To Buy A Business: Although I’ve been involved with many start-up businesses, I’ve only been involved in a purchase once. The final decision came down to a list of positives and negatives. Are any Negatives Deal-Breakers? Are the Positives enough to get the investment back? What’s the gut feeling? Is this really the right direction for the company? Can it hurt the current company? The decision was yes and eventually it spun off as a great “retirement” business. An honest +/- list can be very helpful.
How To Buy A Business: Especially during this economic recession, pay extra close attention to the financial state of the business’s customers. They may be having a tough time paying their bills, and financials that look clean at the surface may not be as stable as you might think.
How To Buy A Business: Remember when you are looking at a business to purchase, if all the business systems are in the owners head rather the a written operations manual all you are really getting is the inventory and business name.Those key employees he is so proud of may leave tomorrow and start their own company. If a system is not in writing it does you no good.This rule is important for any business.
Get your systems in writing and make sure all your people have access to it.
How To Buy A Business: Regardless of your reason for buying a business, you should always know all the reasons why the current business owner is selling the business. Many entrepreneurs find low prices or location as reason enough to purchase an existing business. While these are great factors to consider, it is even more important to understand exactly why the owner is no longer interested in owning the business. There are often unknown drawbacks to particular businesses that should be exposed prior to your purchase.
How To Buy A Business: When buying a business or beginning a new endeavor consider two factors. The money side is a venture where you see yourself able to make a profit. The honey side gives you a chance to do something that you always wanted to do.
How To Buy A Business: Most acquisitions fail. The exception is where you buy a competitor with whom you can consolidate operations to save lots of money and overhead while keeping all the same customers. Look for opportunities to shut down redundant facilities and sales offices. The best opportunities come when the competitor has customers who are loyal, but the operations are high cost.
How To Buy A Business: No matter how great the deal looks, and yes, do all of your due diligence to ensure that
“looks” are not deceiving, at the end of the day, you have still Gotta Love It!! Make sure the business is one that will both fuel and feed your passion!
How To Buy A Business: Great businesses have a passionate cause driving them. What will drive you when the chips are down, when it seems the odds are against you? Working towards a cause you truly believe in will drive you to the next level.
How To Buy A Business: In this economy, it is either the best of times, or the worst of times. If the time is right for you to expand your business, and you have your eye on a special location, negotiate a one or two month rental first. Print up flyers and contact cards announcing the new location and then gauge the traffic. This is a win-win situation for all; the renter has money, you have a good test-drive to see if the investment is worth it. At the end of the time, you’ll have a good idea of your good investment
How To Buy A Business: Same topic but a little different thinking. Start your business with selling it in mind. I hear clients say but I never want to sell my business! Then the question becomes do you really have a viable business? Create systems, create value, and make yourself replaceable. Those in fact are the same things you would be looking for in purchasing another business. You want to have turn-key systems that allow you to not only go on vacation but to sell your business in the short or long run.
How To Buy A Business: To own your own business you will need capital, Maybe you will need to borrow form Lenny or Frank. Just pay them back before you get your legs broken. Another way you own your own business is just to go and buy it. Be daring and just do it! Like the Nike ad.
How To Buy A Business: Since the seller will (naturally) focus on the more positive aspects of their business, you need to do the due diligence to verify details related to the business ownership, payables (with aging), receivables (with aging); understand how they recognize revenue and when. Pay particular attention if the financials are a management compilation rather than audited. Also, speak with key vendors, customers (of your choosing) and employees (with permission and confidentiality). Trust but verify!
How To Buy A Business: Often when you buy a business you look at the numbers, the financials, the due diligence reports. Yet a dear friend of mine overlooked one KEY step –learn from the customers.
Do whatever it takes to connect to the current customers of that business to truly learn the health of that company. How much good will are you buying or how much bad will must you overcome with your money.
With social media this type of discovery is now quite feasible.
Good luck w/good connections!
How To Buy A Business: When buying any business, it is critical to look at what the company earns in profit. High revenues may look enticing but unless the business can turn a significant profit you should dig deeper. Often, revenue can be grown by improving sales/marketing techniques but weak profits may signal other issues such as unavoidable high overhead, high cost of goods, etc. Don’t be “sold” on high revenues…get hooked on high profit potential…because its what you keep that really matters!
How To Buy A Business: If you are expanding or acquiring a new business make sure that you have a clear vision of your company’s services and product offerings. Your vision should be outwardly focused (not inwardly) on what measurable benefits you will be giving to your customers/clients, community, employees and vendors. How can your company make a difference or add value to your existing and future customer base? Your vision should be long-range, expansive and slightly unattainable. Think big and revolutionary!
How To Buy A Business: Be careful that you’re able to keep the clients or customers. If you’re buying a solopreneur’s business, that person may be the main reason for customer loyalty. Good will is important in any business, but if that’s what drives this company’s success, it may not be in your best interest to move forward. All that good will could ultimately turn into clients saying goodbye.
How To Buy A Business: It starts with asking yourself some questions?
Why do you want to own this business?
Is this your passion and why?
What is the history of the business?
Who are your customers?
Who is your competition and how are you different?
Do you have a good lawyer and financial person to review the documentation and to help you set everything up?
Do you have the funds to carry you until the business starts earning money?
Do you have the time it takes to make it successful?
How To Buy A Business: The key to a successful business purchase or new venture is to do your homework. If it sounds too good to be true it probably is, basically if they are trying to promise you instant returns or thousands of dollars beware. Most businesses take about 2 years to become profitable, and 5-7 years to see if they will survive. Be sure you understand the business or technology, don’t just jump because they instill a fear of loss (someone else will take it if you don’t). Be smart, be savvy!
How To Buy A Business: Remember how hard you studied for all your school exams. Multiply that by ten and that’s the kind of due dilegence you need to do before you buy a business. Not a numbers person? Get one! You really want to look at the actual revenue the business has produced and not just gross income..actual profit! That and a proven track record. If the sale is based on future potential and there’s not much revenue thus far, you’ll want to really do a lot of market research to justify the cost.
How To Buy A Business: If you are looking to buy a business, the key factors you will need is your eyes, desire, determination, and drive. Buying a new business is not all guns and roses. You have to do research. You have to look for the opportunity, research the niche or company, determine if it is something you can make money with, then jump at the opportunity with full force. Don’t worry too much about capital, just get started. You can always get the money.
How To Buy A Business: When buying a business, due diligence is a necessity. Don’t just research the company. Also research the owner and key people. They must be honest, trustworthy individuals. Written agreements are great, but they may not protect you if the people you’re dealing with are unethical.
How To Buy A Business: Listen to what a business owner is telling you when they are trying to sell their business, but verify with other sources. Ask yourself, “Why is he/she telling me this?”, “What is their motive in saying that?” If they claim 200 customers a day walking through the door, make yourself a sack lunch and sit in your car and count for a day. The next day, ask how many customers they had the day before.
How To Buy A Business: Great question. Individuals make decisions based on their culture, values, belief systems, and what they hold ‘near and dear.’ It’s fair to say that these factors will have some impact on their level of success. When considering a new business endeavor, pursue what brings you the greatest joy and fulfillment. This automatically creates a platform that will resist frustration, as much as it will encourage creation.
How To Buy A Business: Purchasing a Couture Dress L’atelier, be sure the workers are skilled artisans in their own right.
Reasons:
*Quality rather than quantity.
*Can easily translates any 2D designs into 3D products without time wasted in education.
*Similar wavelengths/goals within the entire co.- on all levels.
*Superb design + skillful technology + experience + common sense = unique high-end products.
*Harmonious workforce as family = staff loyalty to the business.
How To Buy A Business: If you are buying an existing business, make sure that there is some “juice left in the orange”. There should always be some upside for you. This may be existing databases of customers that have been neglected, joint venture or alliance partners not yet set up or a product range that can be introduced.rnIf you are good enough on your due diligence, you can even get access to these businesses without paying a premium
Two additional things that your readers REALLY need to know;
1. Before taking over a lease on a commercial space, or starting a new lease, go to City Hall, and find out if there are any road construction projects coming up in the near future. Almost no one thinks to ask that one! Road construction in front of your business can hurt. Big time.
2. Skeptical me is always trying to figure out the real reasons for things. See if you can find out what the “real” reason is that the existing businesses you are buying is for sale. It may not be what you think it is, or what you are told it is.
The Franchise King
Joel Libava
Mike Michalowicz Says:
October 29th, 2009
@Joel – THANK YOU for the tip on road construction. That is a great observation. And for a new startup, with tight cash, road construction could be the death nail.’
Joel Libava Says:
October 30th, 2009
Mike,
Is that a Halloweenish type reference? As in the last nail in a coffin”?
JL
Mike Michalowicz Says:
October 30th, 2009
Joel… nice eye, brother! Yes that was a Halloweeny move I made.
October 29th, 2009
Mike,
Great job!
Two additional things that your readers REALLY need to know;
1. Before taking over a lease on a commercial space, or starting a new lease, go to City Hall, and find out if there are any road construction projects coming up in the near future. Almost no one thinks to ask that one! Road construction in front of your business can hurt. Big time.
2. Skeptical me is always trying to figure out the real reasons for things. See if you can find out what the “real” reason is that the existing businesses you are buying is for sale. It may not be what you think it is, or what you are told it is.
The Franchise King
Joel Libava
October 29th, 2009
@Joel – THANK YOU for the tip on road construction. That is a great observation. And for a new startup, with tight cash, road construction could be the death nail.’
October 30th, 2009
Mike,
Is that a Halloweenish type reference? As in the last nail in a coffin”?
JL
October 30th, 2009
Joel… nice eye, brother! Yes that was a Halloweeny move I made.