There are certainly pros and cons to both buying and starting a business. The risk factors may favor purchasing an existing business.
According to Michael Gerber, author of The E-Myth Revisited, 40 percent of new businesses fail in the first year and 80 percent fail within five years. On the other hand, purchasing an existing business reduces an entrepreneur’s risk. There are a number of reasons to consider in purchase an existing business rather than starting one:
Creative financing is normal for today’s business buyer. There are a number of options that you can consider.
- Seller Financing – Increasingly, buyers and lenders are looking to the seller for financing at least part of a transaction. In such a scenario, the seller will hold a note at an agreed upon interest rate for a specific term – generally not longer than five years. The terms of the sale may include a balloon payment at the termination of the loan. It’s a way of giving the buyer time to get up and running and to establish a successful track record with the business. Seller financing of at least a portion of the transaction makes the participating bank more comfortable. Lenders know they have a seller who is confident in the buyer and has a vested interest in the success of the business. There are a number of benefits for business owners who are considering seller financing: (more…)
Merriam-Webster Dictionary defines due diligence as “research and analysis of a company or organization done in preparation for a business transaction.” Ultimately, due diligence is the process of being sure that things are as they appear before a deal is finalized. The review of documentation and the answers to your due diligence questions are critical. There’s no doubt it is a complex process that can be time-consuming, but you don’t want to make a decision without all of the information.
Whether you are buying a business or investing in a franchise here are some things to consider preparing as part of the process:
A self assessment:
Ask yourself why you want to buy a business. What types of work activities do you like and what kind of lifestyle do you want to pursue? It’s important to understand that there may be more work and longer hours for an owner in some industries. Be sure to include your family in the assessment.
The typical business owner will sell only one business. Understanding the complex process involved will help produce the best results, but don’t fall prey to the myths that can derail or seriously affect a potential sale.
Myth #1 – It’s Like Selling a House
Selling a company is more complex than selling a house. A successful business sale usually requires a good deal of pre-planning. The Seller may want to develop key staff, improve and document the operations and better control expenses.
An in depth review of your key Indicators of Value and our Business Readiness Review can help you assess the things you need to do to help maximize your business sale.
Confidentiality. A business broker will use his/her best efforts to protect the identity of the company using a blind profile – with targeted potential buyers describing the company without revealing its identity. As the process moves forward, the broker will obtain a Confidentiality / Non – Disclosure Agreement, (NDA) from serious buyers who need to perform a more in depth analysis and due diligence of the business.