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Is now the right time to buy a business? |
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Is now the right time to buy a business?
Extracts from an article By Mike Handelsman, posted on www.entrepreneur.com
Complete text on:
http://www.smsmallbiz.com/bestpractices/Is_Now_the_Right_Time_to_Buy_a_Business.html
OVER THE PAST year, historically high levels of unemployment have left record numbers of highly skilled individuals looking for work. Many are asking themselves if now could be the right time to pursue their dream of buying a business and becoming their own boss.
With corporate jobs less secure and available now than perhaps at any time in recent history, buying a small business could be an excellent way for many of these unemployed individuals to take control of their own destiny and success. Tough economic times have created an abundance of distressed companies in the business-for-sale marketplace, meaning business buyers currently have access to great bargains.
However, anyone thinking of becoming a business owner must undertake considerable research and self-evaluation before taking steps to turn the idea of buying into a reality.
Anyone thinking of purchasing a business should keep the following points in mind before going further:
Analyze Your Strengths, Weaknesses and Lifestyle Needs
When buyers choose the wrong businesses, their entrepreneurial dreams can quickly turn into stressful burdens.
Here are five critical questions to ask yourself before deciding what type of business is right for you, or if you are even cut out to be a business owner:
Do I have hobbies or interests that I want to make a part of my daily job?
What are my strengths and skills? If you buy a business that allows you to put your strengths to work, it will have a much better chance of succeeding.
Are there any particular times I absolutely can't or don't want to work? Keep in mind that owning your own business does not necessarily mean more free time; it can mean just the opposite. Be prepared to handle the long hours that often come with running a business.
Am I comfortable managing people?
What size business do I want? Small businesses can range from zero to 100 employees.
Understand the Market
It's not uncommon for new business buyers to enter into the buying process without a solid understanding of the small-business market and what they should look for in an investment. These buyers are only throwing nails in the road by being unprepared and are positioning themselves for hard times ahead.
The moment you identify a business that grabs your interest, you should begin investigating the business and everything surrounding it--including the industry as a whole, competition, marketing efforts, suppliers and so on. It's important to do this early so that once you contact the seller, you'll know exactly what to ask.
You should know what a business in your location and industry of interest typically costs. Websites such as BizBuySell.com offer tools to enable you to conduct quick and easy business valuations by benchmarking the business you want to buy against businesses in the same industry.
Finally, you should make a point to talk with existing business owners--ideally in the industry you'd like to enter--who can speak from experience and offer invaluable advice on how to approach a purchase for the best results.
If you don't feel comfortable taking a do-it-yourself approach, a business broker can help make sure you cover all bases and avoid getting burned in a transaction.
Run the Numbers
It is important to know exactly what you can afford and how much income you'll need every month to live comfortably.
If you don't have reserves, pursuing businesses for sale with a seller-financing option is probably ideal. Since bank loans are so hard to come by, seller-financed opportunities are most likely to pan out.
In many cases, seller financing can also be more advantageous to buyers because it helps ensure that sellers will remain vested in the success of the business after you take over. Your success is directly related to your ability to pay the seller back.
Narrow Down and Negotiate
If you've done your initial due diligence and have determined that buying a business is the right decision for you, it's time to narrow your options. Pinpoint the top three or so businesses for sale that most appeal to you and carefully weigh the pros and cons of each.
After you correspond with the business seller and get serious about going through with a transaction, you'll enter a negotiation process. Since the down economy has created a distressed selling situation for many sellers, the time is right for you to be able to negotiate a great deal. This is when it pays to have a comprehensive understanding of business valuations and the knowledge to ensure that you arrive at a number that's fair and that you're comfortable with.
Once you reach a pricing agreement with the seller and progress to the stage of an accepted offer, it's time for more due diligence. The period of financial due diligence typically lasts from 10 to 30 days and allows you access to all of the company's books and records. Review them carefully, and if you're working with a broker, make sure that broker clearly explain to you the implications of the information.
It's a buyer's market, so if you approach your entrepreneurial dream with the right amount of consideration and research, you might just find that it's time to leave your traditional job description behind and become your own boss.
Mike Handelsman is general manager of BizBuySell.com, the internet's largest and most heavily trafficked business-for-sale marketplace. BizBuySell currently has an inventory of more than50,000 businesses for sale and more than 750,000 monthly visits. BizBuySell also features a business valuation tool that draws from one of the largest databases of sales comparables for recently sold businesses, and one of the industry's leading franchise directories.
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