BUYING A GOING BUSINESS IN RETIREMENT
Buying an existing company is often the fastest, cheapest and least risky way to access the business world. But the acquisition process can be difficult. Many novice buyers have unrealistic expectations of how easy it is to find a profitable company for sale, the extent to which owners are willing to provide financing and the appropriate methods to get a reasonable price to offer for the company.
Likewise, many sellers have unrealistic expectations regarding the value of their company and the buyer’s expectations regarding financing. Buying a company is hard work. Finding an acceptable goal is difficult in and of itself. So, you (with the help of various consultants) will need to analyze and verify financial and other information. Finally, it is necessary to negotiate the price and conditions with an owner who most likely feels he is buying not only his business, but years of sweat and effort, for whom he expects compensation. Despite the difficulties and obstacles, if you are realistic and persistent, you can be well rewarded for your efforts.
For the retired entrepreneur, buying is often a better route than starting from scratch. Some of the benefits include:
Established Customer Base –
It is often said that a company starts with a customer. An ongoing business, at least one that deserves serious consideration, will have an existing customer base and existing cash flow. Except in unusual circumstances (such as reliance as a consultant on a former employer where a pre-retirement agreement was negotiated), a start-up company will have no customers at the start. When you buy a company, this customer base is a lot of what you are buying.
Less Setup Time –
Starting a business takes a long time. For a young entrepreneur this may not be a big deal, but for the retired entrepreneur, it is a real consideration. Typically, a start-up entrepreneur must purchase equipment and supplies, set up an adequate space, get telephone and Internet, installation, etc. An ongoing business has already done so, so much time can be saved.
Lower Risk –
Any small business enterprise takes a risk. However, a business with a good track record is always far less risky than a start-up. At least a durable business managed to survive for a period of time. The concept was tested in the market, and the ways of doing business were likely to be improved and improved along the way. Therefore, what you are buying is a major shortcut for finding and implementing effective and successful business operations practices.
Banks (and the SBA) consider acquisitions more favorable than start-ups see. Bankers are trained to dismiss an entrepreneur’s claims and dreams and instead rely on financial statements that demonstrate past performance. The start-up does not have such a past performance, which makes the banker’s task of analyzing the financial statements impossible. However, the buyer of an ongoing business will have past financial statements that will allow the banker to do what he is trained to do: analyze them. Having past financial resources provides a common prerequisite for obtaining bank financing. In addition, you may have the option to borrow a portion of the necessary funds from the seller. While sellers don’t like to take back the card more than they should, most buy / sell offers involve some of the owner’s financing. In our experience, owners typically finance 20% to 40% of the deal.