So you have decided that you would like to run your own show and buying an existing business versus starting from scratch is the way to go. This is a very wise decision if you have not been involved in a start-up before. The question then is: Are you ready?
The following steps need to be taken in order and looked at really seriously. This is just the beginning however it is essential to be in the ideal position to make exactly what will certainly be a very big, life changing move.
Step 1: What kind of company?
You have to choose exactly what type of business you wish to be in. At least whittle it down to 2 types. If you don’t, a few things will certainly occur. First, you will certainly be looking for a long time in a really broad circle. It is tough to obtain a grasp on a great company chance when you have no idea where you wish to be. If you are all over the location, you are not all set to purchase a company.
Second, individuals who will certainly most likely be helping you (advisors, brokers, and so on) will not wish to be around you for long. They will be spinning their wheels with you and will swiftly put you at the bottom of the list. Even sellers who are trying to sell on their own will certainly get annoyed with you really quickly if you pound them with concerns but otherwise do not seem too interested in their business.
Step 2: Do you require a partner?
Partners are essential for 2 things. Either they will provide you with capital or they will certainly supply you with abilities you might not have. The latter is a better factor for a partner and a combination might work as long as you are sharing an even cash 50-50 discount. I don’t advise choosing a partner based upon their savings account. You will certainly most likely have major troubles within 12-18 months. Believe me, I have actually been there.
Running a business on your own, particularly for the first time, is a terrifying proposition. But having an excellent accountant, legal representative and a company advisor is the way to go. At one point or another, even your buddy will certainly turn on you as a partner.
You are better off having someone that covers your shortcomings as your employee, together with a deal to provide them a little piece of the pie while they remain an employee. Having a partner or more holding a huge portion of business over your head will rapidly stifle you and make you regret the purchase.
Step 3: What type of buyer are you?
In my experience, there are three primary types of true buyers: those that look just for high cash flow, those that search for suitable positive capital with the thought of using their experience to grow the business, and those I like to call bottom fish.
Bottom feeders prefer to search for sellers in a truly bad position such as battling partners (see step 2), or negative money flow due to an unskilled owner. These are best to scoop up for next to absolutely nothing due to the fact that the sellers not just wish to get out, however they need to go out.
If you are a bottom fish though, you much better be excellent at turning things around swiftly because these businesses are in major disarray. Being able to see ways to get them into a positive cash flow or an excellent light rapidly is a required ability too. A bottom fish can likewise be looking for the opportunity to get devices and fixtures cheaply for their currently running business.
Likewise bear in mind that it will be beside difficult to obtain seller financing from these types of purchases. The last thing these individuals really want is to stay tied to the business or their arch opponent ex-partner.
I should explain that if these are “true” purchasers, then there are likewise “incorrect” purchasers. These individuals are either the not really prepared and uncommitted buyer that I am trying to not let you be or they are simply searching for details. This means either they currently have a business and they are trying to scope out rival details to assist them or they are prepping to start a company from scratch and can working with the details to assist them get an upper hand at the same time.