Buying A Business From Someone

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Having your own business is great. Building one from scratch Really hard. Which is why some entrepreneurs opt to buy an existing business outright. There are other reasons to buy a business too, like acquiring an up-and-coming competitor, or just building your investment portfolio.

While buying an existing business typically involves more upfront cost, it also presents less risk than starting from scratch. Financially, you're looking at actual profit and loss records rather than rough estimates, and there's a clear history of sales to point to. You may also acquire valuable patents or copyrights, or have the opportunity to drive a stagnant business in an exciting direction with your expertise.

But even when a founder is ready to move on, the decision to let go of something they built from the ground up isn't an easy one. By finding the right buyer -- someone with the passion to take the business to new heights and the strategic mind to make the business perform well into the future -- a founder can move on comfortably, knowing the business they built is in good hands.

Angel investors or venture capital: In this model, you would be partnering with someone else to purchase the business -- they are the financial investor, and you are the on-the-ground operator. If the business succeeds, this will cost you significantly in profits. But if it fails, you won't have to worry about paying debts on a business that isn't making money.

I write about business, finance and technology in the K-12 and higher education sectors. Prior to joining Forbes, I worked at Inside Higher Ed as a business and governance reporter, and before that I worked as a digital producer for Politico. I graduated from St. Olaf College in 2018 with a degree in political science.

Buying a business, as opposed to starting something from scratch, can streamline your path to profitability. It can also be less risky, in some cases, if the brand is already successful and established.

Verify that the required filings for business licenses are up-to-date and the company can operate without interruption or incurring potential fines from federal, state, or local agencies. If the licenses are not in order, you may need to obtain them.

There is a lot involved in buying an existing business. To help you evaluate the business and reduce risk, get professional assistance from an accountant, lawyer, and a business valuation professional.

Running a small business is not a job for the faint of heart. Entrepreneurs work long hours and take on many different challenges requiring a broad range of business skills. Potential business owners looking for a new venture may choose to build a company from the ground up, or buy an existing company or franchise. Companies with a loyal customer base and steady revenue stream can be enticing, though the initial investment might be higher than starting small and building slowly. Let's look at some of the pros and cons of buying an existing business.

There are several advantages of buying a successful existing business, from convenience to a quicker (and safer) return on investment. Knowing the benefits of this business strategy may well tempt the aspiring entrepreneur.

An established business often enjoys brand loyalty with customers and is known in the market. As a new owner, you may have ideas about tweaking the existing brand, but you won't need to make a large investment in marketing to develop something completely new. Adjusting a brand when you already have a loyal customer base is much easier than building a market presence from nothing.

A built-in customer base is a huge advantage to an entrepreneur. Customer loyalty can translate into lower marketing expenses and the ability to bring in sales from the get go. Although current customers may expect certain products and features associated with the company's current product line, they will also be interested in learning how the business may change and what new products will be offered. By invigorating the business and adding a fresh perspective, new owners can hope to increase sales and profit.

Bringing in sales from day one also helps generate cash flow, which is vital to new owners trying to develop their businesses. Owners of startups must devote a significant amount of time to finding investors or attracting financing, while buyers of established businesses can focus on running their new company earlier in the process. A steady revenue stream also allows owners to make improvements and upgrades, while startups may need to run on a much leaner budget until they're able to generate more cash from operations.

Among the many pros of buying an existing business, perhaps none is more critical than starting out with the workforce and established operational systems that presumably made the company attractive enough for you to buy it in the first place.

An existing business should have systems in place to track financial information, inventory, and sales, as well as to perform other essential tasks. Starting from scratch means spending time and money to develop these processes. In cases where outside assistance would be required to set up a new venture, some gains in cost-efficiency may be recognized by buying an established business instead.

In some situations, the previous owner or other employees will agree to stay and help manage the company through a transition period. Files and documentation should also be passed along to assist new owners in learning the details about the company. Even if the previous owner is only reachable by phone or email, having someone available who knows the business can bring the new owners up to speed in a shorter amount of time. Additionally, longtime employees who remain after the sale can provide valuable information and an outlook on what's kept the business alive through market cycles. This institutional memory, combined with some staff continuity, can be important. Customers will feel more comfortable sticking with a new business if they see a familiar face behind the front desk during a transition period.

Growing an already established revenue stream can provide a larger payoff compared with initial business generated by a startup. Practically speaking, the energy and effort required to grow either a new or established business by 25 percent may be about the same. The key difference is there can be more financial reward with an existing business purchase because the added revenue stream comes from a larger base of customers. The original owner has lent expertise and knowledge developed over the years to build more efficient processes, which in turn can bring in more profit. Initial investments in marketing, which generally take years to pay off, may also benefit second owners.

As with any investment, there are both pros and cons. Research the company as much as possible prior to making an offer. Don't limit your information to what is presented by the current owner; get out into the community and talk to vendors, customers, and anyone else who has dealt with the business for sale. Engage a financial adviser to study the information provided by the current owner and offer advice on pricing. You can also work through the buying-an-existing-business checklist provided by SCORE. There are several factors to consider, but generally aspiring entrepreneurs must be mindful of the initial outlay of money and wary of the situation they're walking into.

Buying an established business will often cost more than starting from the ground up. Further, established businesses that are highly profitable will likely cost more than those involving more risk or a \"fixer-upper\" in need of an investment in technology or modernized equipment (see below). In comparison, when starting your own business, you have the option to start with a smaller investment and grow slowly over time.

The existing structure can also be one of the cons of buying an existing business. Overstaffing and inefficient processes are examples of hurdles that must be overcome before the company can achieve its full potential. Ask the current owners about inspecting company systems before the purchase, to get an idea of what needs to be upgraded. If technology appears outdated and needs to be replaced or redeveloped, work this into the overall cost of the business. Sometimes, outdated systems are so entrenched throughout the company that it might be easier to create a new business from scratch.

If the existing business has a poor reputation in the community or many negative customer reviews online, this may pose a challenge for new owners. Inheriting a poor reputation for customer service means new management will need to go the extra mile to make sure they're exceeding expectations. As such, you may not be able to raise prices to keep up with competition. Prior to buying an established business, consider how much effort will be required to reshape negative aspects of a company's reputation or culture, and factor this into your decision.

When considering a business purchase, it's important not to cut corners in your evaluation. What you see on the outside may not be a true picture of how the company is run behind the scenes. Keeping the pros and cons in mind can help you spot potential issues, and provide a basis of comparison when evaluating more than one business opportunity. If you're serious about buying an existing business, use a checklist of best practices to give you the best chance at success.

Would you prefer a solo work-from-home endeavor as opposed to managing a retail shop with set hours Before buying a business, consider the personal commitment and how it will differ from your current job situation. If you've never run a business before, consider buying a franchise that offers more operational guidance and set policies and procedures. Location and industry are big factors in deciding what type of business to purchase. Also, getting up to speed on a job in a new field may require a further investment in training and education. 59ce067264

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