Buying a Business?

[nikitakolata]

I was curious if anyone here has considered buying an established business as a way to escape the corporate world? If so, did you use a business broker? How did you find your broker if you used one?

I have become increasingly unhappy at my corporate job. All I think about anymore is "how can I get out of here?" But, it's almost like I've put so much pressure on myself that I cannot come up with a good muse idea to save my life! I've had a couple ideas, but in all honesty, the ideas are for products that I myself know I would never buy. I don't think I can really try and sell something I don't really believe in myself without feeling like some sort of snake oil salesman. I don't want to do that.

But, I was looking at a business broker type of website last night and several of the businesses really appealed to me. Specifically the remodeling businesses because I love that kind of work and it's what I do with all of my free time right now (not that I have much of that!). I think I would really enjoy running a business like that and I feel that if I am a business owner I could much more effectively implement Tim's 4HWW techniques if I ever again get to the point where I feel like life is passing me by. As an employee, I simply cannot control my time... I can't just say "well, I'll take a pay cut in exchange for more freedom" but as a business owner, I could hire people to make that a reality.

Does that sound reasonable? If anyone has gone this route I would really love to hear about it.

[TimW]

I purchased a business to expand my current one, and at one point looked to purchase a completely separate business before taking my current one full-time.

You really need to sit down and think about the motives of WHY you want to do this. You have to have a desire to run your own business...not just to "get out of the corporate world". There are a LOT of other things to do in running a business other than doing "the job" the business has.

Remodeling work, for example: In addition to doing the actual remodeling, you'll need to bid jobs, which means you'll need to advertise and market your company. You'll need to have the proper permits/licenses/bonds/contractor's licensing/tax licenses, material suppliers that will be consistent in quality and availability and allow you to make enough money. You'll need to deal with customer expectations and complaints. Vehicles for the job(s) along with maintenance, gas, insurance. If you have anyone working for you, then work authorization verification, workman's comp, liability insurance, etc.

I can tell you from experience that buying/starting a business from something you love to do (for me, it was tactical gear and gun stuff) quickly becomes just another job. Sure, the items I deal with are of interest to me, but I have many of the same headaches I had while in the corporate world, except that now they've expanded to include EVERYTHING in the business, not just a narrow slice.

Hiring people doesn't necessarily translate into more free time. You need to stay on top of them, unless you're extraordinarily lucky and actually get qualified, motivated and trustworthy folks, and then you'll likely pay for that expertise.

As the sole employee in my company, it'd be much easier for me to take a day off than if I had an employee. For my business, one day closure doesn't matter much, since I am Internet-based. If I had a retail location, then it would be completely different.

When buying a business, you are buying not only a customer list, materials, and name, you are also buying whatever reputation that person / company has (aka "goodwill" in the sale price breakout). And just because THEY were successful doesn't mean you will be.

When I was looking to sell my business, I spoke to a couple of my vendors. Although they extend me terms on my purchases, they were quick to point out that their continuing to offer the new owner products and such was subject to the same review/"underwriting" that they made me go through when I first started with them.

They deal with ME, not my company name. Thus, if you bought a business, a vendor might very well decide to not deal with you. If they are a critical supplier, you're screwed.

Do a Google search on the topic, go to your library and read some books on running a business, and then start working on a business plan. Some here may poo-poo a business plan, but IMO if you're looking to purchase an existing business, it's a requirement...because you're going to need to fund it somehow.

Most business sell on the concept of forward earnings. A really successful business might get 3-10x earnings, or 2-5x revenues. This means that if I made $40,000 on $800,000 in revenues, the business could sell for anywhere from $120k-$400k (earnings) or $1.6mm-$mm (revenues). A lot depends on the business, location, reputation, etc. Do you know what the remodeling industry average is? If not, how do you know if you're over or under-paying?

Why is the person selling? Investigate the real reason, not just what they tell you. You'll need to hire someone to look over their business records for as far back as you can get...unless you're a business valuation expert, it'll be worth the money.

One gun store I looked at claimed several million in revenue, but actual earnings kept going down, and was a negative during what was supposedly their best month during a year. When I asked, I was told that the owner had done a lot of "cash" deals and that had an impact on the official number.

Bullshit, and RED FLAGS went up everywhere. First, the gun industry is highly regulated. If he had no $$ records for the sales, then were these done off-the-books (a HUGE no-no), or was he skimming (another no-no)? There were no satisfactory answers. I walked away from the deal, and his rep was PISSED. That made me even more certain that I did the right thing. Subsequent information later (which I will not go into) confirmed it.

So, yeah, it's a possibility, but you have a lot to learn, young Padawan.

Get to it.

[camdengirl]

Great advice straight from the horses mouth there from Tim!

There are two issues: do you really want to be a business owner and effectively be a commission only worker? And how does buying over another business catapult you forward, rather than starting from scratch?

I too bought a business to expand mine, and what I came up against was that my business has pretty straightforward operating procedures whereas they had completely different ones. So for example, their hourly rate was less than mine but they took longer to complete jobs. They had a deadline of whenever the job was ready the client would get it, ours is and always has been next working day. You want some kind of pre-buying alignment of terms before you take over so the old owner can smooth the way. You also want a manual of how things are done, contacts etc. And you want some kind of guarantee that the old owner won't continue to trade and will be hand hand to offer advice over the next 6-12 months.

This of course is on the basis that the financials make sense!!