Tuesday, 21 June 2011
Buy – Don’t Start – New Business
But it can also be very frightening. We’ve all read about the high failure rates for new start-up businesses. Less than half of new start-ups make it through the first three years and 23% won’t even make it past their first birthday.
There are reasons for this, such as insufficient operating capital, bad management, strong competition, weak customer base, poor business concept or even just plain bad luck. Owners of brand new businesses need to manage a multitude of details, such as product and service positioning, branding, marketing, employee hiring and training, site location, choosing vendors and establishing terms, etc. Even when all the stars are aligned and the correct decisions are made; it can be months or even years before they begin to see positive cash flow.
Imagine if these potential pitfalls could be significantly reduced for you as a business operator? They can.
By purchasing an existing business instead of trying to start one from scratch, a buyer can dramatically minimize the risks associated with starting a brand new business.
Successful existing businesses have a proven track record of profits that generally continue long after a business has been sold. As the new owner, you can take the business to even higher profitability by incorporating new ideas, expertise and energy. A business with a well-known name, location, product mix, knowledgeable employees, etc. will enable a new owner to focus on long range strategic planning rather than day-to-day minutiae. There will be no suffering through an extensive start-up period as you struggle to attract customers to your business. You can use the business’ established customers for immediate cash flow and as your base for future business growth.
Another reason existing businesses can be very attractive is that typically buyers are able to use the seller’s financing to leverage their buying potential. This ensures that the buyer gets maximum bang for their investment dollar.
Also, a new owner can negotiate a time frame where the previous owner will stick around to ensure a smooth transition. Additionally, with seller financing, sellers will want to do everything they can to ensure the success of the new owner.
A professional business broker can help them. They can show the buyer a variety of businesses that are legitimately interested in selling and help them through the purchasing process. They should be able to explain the owners’ motivations for selling and be able to provide pertinent information regarding their financial performance, staffing, facilities, equipment, inventory, product lines, customer base, etc.
A professional broker will be able to draft a purchase agreement that covers all pertinent issues (i.e. non-compete agreements, trade name rights, leases, due diligence, etc.) plus any unique contingencies that are relevant to the transaction. When making a decision to buy your own business, using a professional business broker will allow you to concentrate on important matters associated with operating the business.
Do you have small business questions you would like answered about this article or others? Please visit www.VRWindsor.com or call 519-903-7807.
William Sivell is a sales representative of VR Windsor Inc., Business Brokerage; his blog appears every Tuesday.