Buying a business can be less risky than starting from the ground up. However, it can also be more costly since all of the groundwork is done for you. There are a lot of factors to consider, from inventory to taxes to terms of purchase, which will determine the success of your new venture.
This 3-part series of articles forms a comprehensive guide that covers the buying process in detail, and will help you make sure you get the best deal on an existing business so you don’t have to reinvent the wheel.
You can find Part 2 here and Part 3 here.
From deciding whether business ownership is right for you, to doing due diligence, all the way to closing the deal — it’s a step-by-step account.
This comprehensive, easy-to-read guide, features:
- Sound advice from business brokers who help buyers navigate the buying process.
- Statistics from BusinessesForSale.com’s marketplace survey, which polled almost one thousand potential business buyers in the United States.
- Examples and stories of real people who successfully bought businesses.
Is Business Ownership Right for Me?
- 70% of survey respondents are considering buying a business because a good opportunity presented itself.
- 54% are operating their business as a family business. 74% who plan to buy a business this year will operate it as a family business.
Some people are better suited for business ownership than others. It’s important to determine whether you are one of them prior to making what could be one of the biggest decisions of your life.
Think about your interests, skills, hobbies, experience and weaknesses. Answer all of these questions honestly to help determine whether owning your own business would be a good fit for your personality:
- Are you self-motivated?
- Are you able to motivate others?
- Do you prefer the structured environment that paid employment provides?
- Do you like to be in control of your own schedule?
- Do you thrive on challenges?
- Are you a problem solver?
Consider your capacity to manage people. That doesn’t mean you need to be an experienced manager, but if this is one of your areas of weakness, you will need to consider hiring a manager, which of course, costs money.
Bill Jacobs, who owns Piece Pizzeria & Brewery in Chicago, Illinois says it took him a while as a business owner to figure out a management style that was successful. “I haven’t always been the manager that I am today. I used to be a hothead, and I used to act impulsively. As I’ve gotten older, as business has developed, and as I’ve grown, we’ve put together a strong team of managers and staff. It’s allowed me to look at how I manage others. I don’t act impulsively. I don’t micromanage my people, and I let them do their work,” said Jacobs.
How comfortable are you with risk?
If the thought of financial insecurity sends you into a panic, you may not be cut out for business ownership. Any prospective business owner should be comfortable with the idea of risk and changing circumstances.
However, you must also be in a secure financial position before buying a business. Many owners must endure a period with little or no income to start. In addition, you’ll need to raise financing for the business, so consider your options whether it’s a loan from a bank, investors, family or your own personal money.
What’s your optimal work situation?
Next, consider the type of business you want to run. Do you want a large business or small endeavor? Are there location and scheduling restrictions to your life? If you aren’t willing to work evenings or weekends, it’s probably not wise to choose a business where those are peak times. Be prepared to work hard. Building up a business takes a good deal of time and energy, which can translate into long hours and usually outside of the typical 9am-5pm workday. You may find that you actually have less free time than before becoming a business owner.
Dermot “Doc” O’Carroll learned this when he started his 35 year career in the hotel industry. “The hotel business is a very demanding industry. If you are really committed to it, then you are going to apply yourself absolutely full time. My workday could go from six in the morning to one in the morning, so sometimes, it was never ending. There’s always some crisis that you have to deal with on a day to day basis. But it’s exciting, fun, beautiful and you get to enjoy all of the benefits of the resort while entertaining guests,” said O’Carroll.
O’Carroll owned a total of five hotels before recently retiring. Remember, there’s more to choosing a business than just economics and perceived profitability.
Choosing a Sector
- The most popular types of businesses bought in 2014 were restaurants and retail.
Deciding which sector to invest in will largely depend on your background and interests. This provides another opportunity to consider your strengths and weaknesses. Being passionate about your business will improve your chances of success because when you enjoy what you do, you work harder. However, buying a business simply based on passion is not recommended.
Artyce Dozier, owner of Hair Meets Art salon in Alexandria, Virginia is a third-generation cosmetologist, who loves her work. But she’s also realistic as a business owner. “Any business will have ups and downs and headaches, so make sure you love it before you get into it. If you love your job, you’re working when you’re not supposed to be working. When you are working, you are thinking about more work. So, make sure this is an industry you truly love,” said Dozier.
Like Dozier, it can be easier to transition into a business you have experience with rather than investing in an industry you know nothing about. However, it’s not unheard of. Lots of successful business owners have left behind former careers to enter a new field that interests them. It requires a good bit of research to do so, and many even decide to work in the new industry prior to taking the plunge of buying a business.
Peter Boutsikakis, part-owner of Riverside Foods in Riverside, Illinois was working as an urban planner when his mother decided to sell her portion of the family grocery store business. Wanting to keep the business in the family, Boutsikakis took the opportunity to buy her out. “I recognized an opportunity to learn the business inside and out before I became owner. I have worked the meat counter, service deli, performed purchasing and stock duties, interacted with customers, and even swept the floors,” said Boutsikakis.
If you don’t have the opportunity to actually work in the industry, another idea is to find a business partner with experience in the sector.
No matter how much interest and experience you may have in a certain sector, certain industries are struggling. If you are considering buying a struggling business, determine whether it comes down to poor management or a difficult economic climate. If it’s the latter, you may want to consider a more stable industry.
Keep up your pace!
In Part 2 of this 3-part series, we’ll get into the nitty-gritty of locating a business for sale, setting up a winning business plan, and obtaining the best financing in preparation for the purchase.
If you’re ready to start taking a look at businesses for sale right now, you can access tens of thousands of listings right here.