The idea of running a small business appeals to many would-be entrepreneurs. But the fantasy often loses its allure when faced with the realities of dealing with business plans, investors, branding and legal issues. For those disheartened by such risky undertakings, buying an existing business is often a viable alternative.
One of the issues faced by the would-be entrepreneur is that most business brokers or agents represent the seller. Additionally valuating the business is a confusing issue to most and a mistake when purchasing can prove very costly.
The Decision to Buy
It is imperative that potential business buyers carefully think through their motives for considering the purchase of a business and their criteria in selecting one. A buyer should consider his experience - both vocational and avocational - what he is good at and what he enjoys. If a buyer is interested in a business that has a product or service that is outside his area of expertise, then he should make certain that key employees will stay on after the change in ownership or that similar expertise can be hired. It is equally important that a buyer identify the desired location(s) and the amount of money willing to be invested. If the money to be used is not in liquid form, the buyer should assess what the realistic possibilities are of obtaining the funds from outside sources. One should also decide on the size of the business in terms of sales, profits, and the number of employees. It is important to determine if the desired business is to be one that is profitable and stable or one that is losing money and in need of new management. The more profitable and stable a business, the more it is likely to cost.
Pricing the Business
Determining the value of a business is the part of the buy-sell transaction most fraught with potential for differences of opinion. Buyers and sellers usually do not share the same perspective. Each has a distinct rationale, and that rationale may be based on logic or emotion.