Buying A Business

This is something I always wanted to try but haven't--

Put a half page ad in the local paper saying sincere, hard working entrepreneur wants to buy existing business.  Any industry considered.  Please call ---.

I've looked at a lot of businesses and almost bought one once but didn't and now glad I didn't.  But this approach might be interesting for someone, perhaps like you, that is sick of office politics and measly annual pay increases and just working for the Man.

Here's why you might want to consider buying a business rather than starting a business.  An existing business is already started.  It has a track record, probably makes money and may be positioned for growth.  A wise man once told me that people who want to start their own business are investing in dreams.  Buying an existing business is buying a proven, but perhaps underperforming, asset.   

Why?  Because a business is nothing, the management is everything.  Well, I mean you don't want to buy a business with an obsolete product--nobody wants to own the eight track market.  but products usually don't go obsolete.  Their owners do when the owner get old or bored or sick or tired.   And they are usually stuck.  Here's why.

Let's assume a successful smallish company throwing off a decent living for the owner.  But it is hard work or maybe it isn't.  Like I said maybe he/she is bored, tired or sick.  Wants out, but how because most of what he has is in the business.  Or maybe he has a lot but knows the business is worth a lot but can't find a buyer.

Why wouldn't a viable business be able to find a buyer?  Oh, they can but not for the price the owner wants.  Not in cash, anyway, because most businesses don't have assets to justify a high price.  Huh? 

A quick finance lesson--if a company makes $100,000 in operating income it will sell for between $400,000 to $800,000 because a broker will say this business should sell for, say, five times earnings or $500,000.  Or four times or eight times.  Let's also say the company has hard assets--plant, property and equipment, receivables, inventory--of $200,000. 

So the buyer wants $500,000 but the hard hearted banker will only give the buyer $200,000 to buy the business because there are only hard assets of $200,000.  Actually, this banker is a bad one because really hard hearted bankers will lend only a percentage of the hard assets.

So how is the seller going to sell his business for $500,000 and how are you, you who don't have a dime, going to buy it?

Easy.  I'll tell you tomorrow.

   

Comments

[Claire Nortel]

Woops. That should be BizTrader.com

[Claire Nortel]

@Monica, Have you looked into small business groups in your area? They should be able to help you and direct you to the right people.

Also, check out BizTrader ( http://www.biztrader.com ), which is an online global marketplace where you can invest in, buy, and sell a business. There's a wide selection to choose from, so you should be able to find what you're looking for. You can also find a lender or find a broker, if you need either. Check it out and good luck!

[monica kermani]

Interesting article. I want to run a business, so this is helpful. I want to buy one instead of starting one from scratch, as well. I've been looking around for one, but I haven't had any luck. Do you have any suggestions? Thanks.