6 Reasons to Buy an Existing Business

6 Reasons to Buy an Existing Business

6 Reasons to Buy an Existing Business

Buying an existing business with an established customer base, sales, financial history, supply chain, website, trained employees and many other attributes can actually generate a stronger foundation to grow much faster than a ground zero start-up could. Taking a business from $500K in sales to $1 million in sales is probably much less expensive and faster than getting from $0 sales to $1,000,000.

First generation entrepreneurs typically find that jumping in to an existing business is far more advantageous, personally gratifying and offers a quicker financial return than building from scratch. Michael Gerber, author of The E-Myth Revisited found that 40 percent of new businesses fail in the first year, and 80 percent fail within five years. This would be a big leap of faith for most budding entrepreneurs.

If reducing the investment risk and creating opportunities for bigger profits sounds like your career path to be your own boss, then consider purchasing a successful, existing business.

Benefits of Buying an Existing Business

  1. Cash flow is king.

If you buy an existing and profitable business with a sensible deal structure, the business will generate a reasonable salary for you as well as some excess cash that you can invest in growing the business. Start-up businesses are famous for burning cash for years and most run out of cash before they get to breakeven.

  1. Financing

Buying a profitable business with proven cash flow for a fair price means you can likely buy the business with an SBA Loan Guaranty. This means, if you qualify, you could own the business for as little as a 15% down payment. A business selling for $400,000 could be purchased for $60k down or maybe less.

  1. Don’t repeat mistakes

The seller has likely made a lot of mistakes you won’t have to make. That takes some risk out of the deal, as well as pain.

  1. Apply your skills

In all likelihood you’ll bring some skills to the business the seller doesn’t have. Evaluate the business. Revise systems and processes. Keep the good and transform the bad and you could see a quick boost to profits. Most people think it’s easier to fix a business than start a business. I’ve done both and I agree.

  1. Customers

The seller has figured out what their customers want. You are buying an existing customer base that probably took years to cultivate.  Nurture these relationships. Embrace and foster new ones and you’ll experience an even wider community support base.

  1. Energy for Action

New energy applied to a stagnant business is a great opportunity. You as a buyer will likely be more motivated and enthusiastic than a seller who’s been clipping coupons for years. Energy is highly rewarded in businesses.

Buying an existing business can be a mass of confusing information and opinions but keep in mind, that you are taking a calculated risk which eliminates many potential challenges and the hazards associated with startups.

If you have the will to go through the process it could be the best move you make professionally. As someone once said:

Your worst day as a business owner is better than your best day as an employee.

Business Systems Create Profits and Value

Business Systems Create Profits and Value

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When the time comes for selling a business many business owners suddenly realize how much value is created or lost based on the systems in place for the person buying the business.

We meet many business owners who are overwhelmed by the day to day fire drill they call a business and the thought of creating systems for their business is overwhelming to them. I always give the same advice:

 Start Small but START NOW!  SSSN!

You have to START…. 1 system no matter how small is better than no systems… 2 is better than 1..you get the idea.

But where to start? We recommend picking an important but relatively easy task or process that includes another person in your business. Work together, start with an outline and work down. Your objective at the end is to be able to create a simple checklist so that anyone can learn the process very quickly.

Here’s a sample of a simple process –  What happens when a check comes in the mail at your business?

1. Person opening mail gives Check to Mary

2. Mary stamps check for deposit only (stamp in Mary’s top right drawer)

3. Mary  makes 2 copies of check and puts 1 copy in daily check receipt file and the other in a/r process folder

4. Mary gives check to Joe.

There it is, Mary is done with the check. There would be another process written for Joe for what he does with the check and another process for Mary or whomever records what invoices the customer’s check paid.

Now name this system, it could be “Check Receipt Process” or whatever makes sense to you. Give Mary a copy and start a 2″ binder and put this system in the binder. There that’s a start and you probably got it done start-to-finish in 15mins.  Now when you or Mary have an idea on how to improve this system (do you really need 2 copies of check? ) you just mark-up the system in the binder quick in easy.

Wait a day or two then knock off another system in a few weeks you could have 8- 10 critical business systems in your binder. And why do you want the systems in your binder?

So if Mary doesn’t come to work for 2 weeks or Mary quits. All you have to do is hand the process to the new person who handles the checks and you’re off and running. No training, just have the person work the system.

Systems make managing a business easier, improves customer service and accuracy, increases profits and reduces the cost of training and employee turnover.

Plus, it increases the value of your business when it’s time to sell and realize the value you’ve worked so hard to create,.

Remember Start Small but START NOW!   SSSN