We Do Business The Old Fashion Way Face To Face In Person
Buying a Business
Not all means of achieving financial prosperity are equal. A certain amount of effort in one fieldmight produce wealth, while the same effort expaned in another area might result in poverty orbankruptcy. Many entrepreneurs make decisions emotionally. Then later try to justify themlogically. They ignore the evidence of decades of data and millions of business successes andfaliures. Deciding which type of business to engage in is a very complicated and subjectivequestion. The statistics on whether it’s safer to start a new business vs. Purchasing an existingbusiness however, are overwhelmingly clear. It’s important for a person to be excited andenthusiastic about the business decisions they make, but only after the dispassionate logicalreview of the facts has been done.
CONSIDER THE FOLLOWING STATISTICS:
- 38% of all new businesses fail within the first year
- 77% have failed after 5 years
- 82% have failed after 10 years (United States Department of Commerce)
Starting a new business is the equivalent of playing Russian Roulette with your financial future;Expect that 5 of the gun’s 6 chambers are loaded, instead of the usual 1 of 6. Depending on theType of new business a person starts, the statistics can be even worse.Working for someone else is certainly not the path of financial independence. According to aSocial Security study, conducted by the bureau of Labor: Of every 100 people eho started working at age 25,by age 65:
- 63 depend on Social Security / Friends / Relatives / Charity
- 29 have died
- 3 are still working
- 4 have aequate capital for retirement
- 1 is wealthy
Contrast the statistics above with those for established businesses. Once a business person hasOvercome the ods just sited,the staristics change drastically:
- “The failure rate of established small businesses averages about one if four hundred annually.” (Brian Knight-Business author)
- 89% of those who make more than $50,000 a year own their own business. (IRS statistics)
- 75% of millionaires become so by owning their own business. (Martin Research Firm study)
- “Most businesses which grow significantly, do so after being in existence for ten or more years.” ( Avid Birch of MIT)
- An inventory of businesses to choose from. It’s a good idea to remain open-minded intially about the type of business that tou might like to purchase. Brokers can tell you that the majority of people who buy a business from them buy one different from the one they originally went to see the broker about. Some buyers run into the problem of attempting to investigate too many businesses over an extended period of time. They’re never content and are constantly looking for a better deal. To be successful a business buyer must eventually narrow their focus to only one business and make the final arrangements. “Man who chases 2 rabbits, catches neither.” (Confucius)
- Help as an intermediary during negotiations. Dealing fact to face with a business seller and discussing elicate issue like price and terms can be a very difficult and emotional situation. An experienced broker being involved in the negotiton process, can be the deciding difference in making a deal work.
- The brokers experience and contracts. Finding and forming a working relationship with an experienced broker, can be a tremendous resource to you as a buyer. Don’t waste their time. Be up front with them about your intentions, time frame and financial capabilities. They can be a valuable tool for you as a business buyer.
- Better quality of sellers. The type of seller who is planning on efrauding a business buyer, is more likely to want to deal directly with a buyer and not have an experienced broker going over their records. Another consideration is that sellers who are inflexible and determined to squeeze every last nickel out of the sale of their business, are in most cases, not going to use a broker. This fact will often make up for the commission that is paid on the purchase of a business.
What is it that separates those who successfully purchase a business, from those who spend their whole lives reaming, planning, and hoping? They’re always looking, but never buying. They’re forever a year or so away from taking action. “Don’t confuse activity eith achievement.” (Bill Walton) buying a business is more complicated than simply finding a seller who will take down payment that is less than the buyer has in the bank.
There’s a saying in business which says that it takes money to make money, but it doesn’t have to be your money. It’s similar with experience. It takes years of experience to make wise business decisions, but it doesn’t have to be your years of experience.
Successful business buyers make their decisions baced on facts that can be substantiated: Demographic studies; Traffic counts; Industry standards and ratios; Complete inspection of thebusiness premise equipment, inventory and books; Analysis of the competition, etc. Unsuccessful business buyers base their decisions on their feelings, hunches and intution.
- 78% of business owners would choose to do exactly the same thing if given the chance 66% consider themselves successful beyondeven their expectations. Fewer than 1% would prefer to go back to the corporate world. (Louis Harris poll of 2000 business owners)
There is no safer path to financial independence, than to throughly check out and purchase an established, already successful business.
Imagine starting a new business and knowing in advance that it will be successful; knowing exactly what your expenses, sales and profit are going to be; having one of your competitors finance your start-up and spending a couple of months working with you, teaching you everything you needto know in order to be successful. Of the example just given happens when an entrepreneur chooses not to beat the compitition; but to join them, by buying a business; as opposed to starting a new one.
Inc.Magazine recently ran a headline which read:
“Smart people aren’t starting businesses, they’re buying them”
Some of the reasons thatpurchasing an existing business is better than starting a new business include:
- The customers are already in place
- Established relationship with suppliers
- Years of accumulated advertising
- The employees are already trained
- Can be purchased with seller financing
- Established reputation and name recognition
- The seller’s help during training period
There are many people who can’t get exicted about purchasing an existing business, because they believe there are so many other seemingly more lucrative business opportunities available. The lies to truth ratio in the “Business Opportunity” market, exceeds anything most people have ever encountered in a courtroom or singles bar. Only regular C-SPAN watchers will remain unshocked as they investigate some of the scams that exist in this area. Reading about an becoming involved with “Get rich quick”, “We do the work, you make the money”, “make money while you sleep” business opportunities, can be as addictive as gambling and for the same reason . Experts in the vending field foe example, will tell you that about 98% of the newspaper ads with 800 numbers advertising. “Established vending route for sale” or “Make money Restocking displays”, are nothing but scams. Since all honest business opportunities come disguised as work, by the time some people have weeded out everything that looks like work,the only thing left is business opportunity scams. There are no loopholes in the laws of success.
Some people spend their whole lives looking for a “secret” way of making money. This is like trying to lose weight with fad diets; without exercising or eating less.
SMART PEOPLE LEARN FROM THEIR MISTAKES, WISE PEOPLE LEARN FROM THE MISTAKES OF OTHERS.
Every legitimate way of making money involves a certain amount of risk, work, and inconvenience. If any business opportunity appears not to involve these elements , it more than likely does involve fraud. Love is blind and so is greed. A consistent feature od all business scams, is that they will always seem much more lucrative and will appear to involve less work than legitimate business ventures.
Many people fail in their attempt to find and purchase a business, because they’re looking for something which doesn’t exist; a perfect business; in spotless condition; operating at peak performance; no risk, etc. An experienced real estate investor, for example, doesn’t look for property in perfect condition, the most expensive property in a neighbourhood. There’s no way to improve the real estate or add any value to it. In addition, it more than likely will be overpriced. Smart business buyers, like smart real estate investors, look for deals that have the right things wrong with them. In real estate, an investor looks for a property that needs paint or the lawn watered; not a property in a bad neighborhood, that needs a new roof. A business buyer should be looking for a business that has: a burned-out owner, a lazy manager; dirty floors, things that can be quickly and inexpensively improved; a business that can be purchased below market value. It’s much easier to make money when you buy a business than when you sell it.
USING A BUSINESS BROKER
There are numerous advantages using business broker when buying an existing business, some include:
- Maintaining confidentially during the sale. If a business seller is selling their business without broker, it isn’t long before everyone knows about it. The suppliers begin to cutback on their terms. Employees begin to send out resumes. Customers start looking around for other places to do business, these are now your problems. You might end up buying a business that has been substantially damaged and worth comsiderably less than before the transition of ownership.
The elements of doing a complete due diligence investigation may seem like an incredible amount of work, but it’s relatively little compared to what’s involved in spending years trying to rebuild your dinances if you get mixed up in a bad deal.
“When a person with money meets a person with experience, the person with the experience winds up with the money and the person with money winds up with the experience.”