Buying Tutorial

Is it time to buy a business?

We understand that buying a business is a major decision and that you might have a lot of questions about it. Below, we have included common questions that buyers typically have when initially engaging with us.

If you find that this applies to you or if you would like to continue this conversation, please don’t hesitate to contact us so we can see how to best help you.

Table of Contents

For Prospective Buyers

Going into business for yourself is a big step, one that can be full of apprehension and even fear. Almost 90 percent of all those who purchase a small business have never owned a business. Most of them bought a business that was different than what they had been looking for. These buyers had the opportunity to explore the marketplace and subsequently found a business more to their liking. In some cases, the sellers have offered to help finance the sale.

Most buyers are seeking to obtain the following when considering the purchase of a business:
  • Control of own destiny
  • Pride in the service or the product
  • Flexibility
  • Income
  • Recognition
  • Security
  • Privacy
  • Status
  • Customer and employee contact
As you begin your search, keep in mind that running your own business is more than a job; it is a lifestyle change. In most cases, it is a very big lifestyle change.
Usually, you will be working longer hours, making all of the decisions, and, as the expression goes, “you will be the chief cook and bottle washer.”

What to look for?

How Long Has the Business has Been in Business?
A business with a long track record typically means it has a history of success. It will be well known in the area, and people will be used to patronizing the business or using its services. The longer it has been in operation, generally, the better the business.
The longer the present owner has been in business, the more likely he or she has been successful. People don’t tend to stay in business if they are not making money.
If the owner has been in business for six months and is 37 years old, this could be a reason to be suspicious. However, the more valid the reason for sale, the more realistic the seller will be in considering your offer. Keep in mind that after five or six years or more, people do get restless, “burn-out” sets in, and people look for new challenges. Why the seller is selling is an important question – be sure to get a satisfactory answer.
Financial records are a good indication of how well the business has been doing over the years. Keep in mind that tax records are not designed to show the business in the best light; no one likes to pay more taxes than they have to, and business owners are no different. Generally, tax returns are a worst-case scenario. You need to be able to look at the expenses and discover which ones are non-cash items, such as depreciation and business use of home and vehicles. How important was that business trip to Las Vegas? A professional business broker can assist you to review these records and consider the pros and cons involved.

Keep in mind that financial records are only the history of the business. There are no guarantees that they will or can be duplicated or repeated. All of your profits are future. In the final analysis, the financial records of the business are an indicator of what the business has done; what you do with its future is up to you.

The bottom line

Being in business for yourself can be a daunting prospect. There are no guarantees. At some point, after all of your investigation is completed, you will still have to make that “leap of faith” that is necessary to proceed with the purchase of the business. You will have to work hard, perhaps even “tighten your belt” a little, and perform many different jobs to be successful in your own business. But, if running your own show, making your own decisions, not having to worry about job security (remember, no one can fire you from your own business), and just being on your own are important – then it sounds like owning a business is for you.
After taking this leap of faith, almost all business owners will tell you that they would never go back to being an employee.

Insider Tip

Unless you are completely familiar with the type of business purchased, it is beneficial to include as part of the agreement that the seller will stay with you (30 days is fair, with perhaps another 30 to 60 days of telephone consultation) a sufficient length of time to teach you the business – at no charge. If you want the seller to stay longer, it may be best to offer to pay him or her a consulting fee of some type.

Buyer’s Motives

The next step to buying your own business is to make sure it is the right move for you and your family. Owning one’s own business is still very much “the great American dream,” but it’s not for everybody. Here are some questions that you should ask yourself before taking the next step.

How long have you been thinking about buying a business?
Many people are interested in buying their own business, but are not willing to make the commitment necessary to move forward. They continue to look just like those who continue to look at new and expensive automobiles, but will never spend the money necessary to buy. One veteran observer has said that the longer you look, the less likely you are to buy.

If you’re thinking of buying a business in two years, it’s good to start your education. You can begin by reading through our Buyer Articles located HERE. Keep in mind that it really doesn’t make much sense to start your search now, since any business you find now will have been sold by the time you are ready to buy. It’s important, however, to arm yourself with all of the information and education available before you begin the search.

If you are not motivated to buy a business, you won’t. You must go into business for yourself for the right reasons. If you’re tired of the corporate world, just have a “job-job,” or perhaps even a dead-end job, then business ownership may be right for you. Certainly if you’re unemployed or being transferred to a place where you don’t want to go – buying your own business can be a viable solution.
Buying your own business requires a serious financial investment. If you’re the type who does not want risk, you might want to rethink owning your own business. It is not for the faint-hearted.
If your family, especially a spouse, is not behind you 100 percent, then you should think twice about business ownership. It’s very important that you have the support of your spouse. He or she has to understand that running a business can be time-consuming. On the plus side, however, many businesses do allow for flexibility so you can attend the afternoon little league game.
It’s best if you are open-minded, especially if you are a first-time buyer. There are many types of businesses available, and you don’t want to limit your choices. You should be looking for a business that will provide the income you need (or ability to do so), that you can afford,that has numbers that work, and, most importantly, that you can see yourself running.
Do you think that you can buy a business with lots of cash flow for $100? It’s important that you have realistic expectations about what your money will buy. Many sellers are willing to assist in financing the sale of their business, but remember, they’re not going to give it away. Keep in mind that many business owners have spent years building their business, and it may represent the biggest financial asset they have. They’re not going to just hand it over to you.
Many prospective business owners do their homework, do everything necessary to begin the purchase process, and then back out of the transaction. They just don’t have the courage to go forward. There is nothing wrong with that; not everyone should buy and own their own business. However, if you don’t think you can part with your money and take over operating the business on your own, you may want to take a second look at business ownership.

 You can and should look at all of the financials, tax returns, and all of the books and records. Remember, however, that they all represent history. You can’t buy anyone else’s history. A new owner makes changes, no matter how subtle. Their management style is different, and times change. You have to look at the business with the attitude of how you can improve things. The financial history of the business is certainly important, but it does not guarantee the future of the business – you do.

Do you have other questions?

Be sure to visit Buyer FAQ for answers to the following questions.

  • Why should I buy a business rather than start one?
  • What is the real reason people go into business for themselves?
  • How are businesses priced?
  • What should I Look for?
  • What does it take to be successful?
  • What happens when I find a business I want to buy?
  • Do I need an attorney?

The Next Step

If you have determined that business ownership is right for you, you have discovered your motives, and you are ready to take the next step, please visit our featured listings, join our email list, AND use the contact us form to set up an introductory meeting with a broker. We look forward to working with you. Good luck in your pursuit for business ownership!