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Is Buying an Established Business Right for You?

Are you feeling like you are stuck in the rat race? Is your career stagnating? Are you facing each morning dreading going to work?

What if I told you that you could be your own boss – ridding your life of the boss who doesn’t show appreciation, maximizing your knowledge and experience, and growing your income and net worth – is within reach?

Being a business owner may not be for everyone. However, there is no denying the abundant rewards that business owners experience. Is buying a business right for you? Let’s take a moment and explore the diverse benefits and potential drawbacks of owning a business and help you decide whether or not this path is right for you.

As with any major life decision, careful consideration must be made within the context of the advantages and disadvantages. Acquiring a business is no different and will often become one of the biggest decisions you will make. It will impact your lifestyle in many distinct ways.

Some of the major advantages of acquiring an existing business include:

  • Lower Risk / Higher Success Rate – with an existing business comes a history of performance. The financial and non-financial data can be evaluated to assess the ability to continue generating profits and cash flows. If a longstanding business, it has surely been through different economic cycles having weathered any storms and prospered through challenging times. Startups, on the other hand, have an exceptionally high failure rate.
  • Immediate Revenue Generation – with an existing base of customers and ongoing sales, the financial foundation has been established, thus allowing positive cash flow to service any debt, draw a salary from, or finance growth initiatives.
  • Brand Recognition – existing relationships with customers and vendors
  • Qualified Employees – inheriting competent employees provides immediate institutional knowledge without having to recruit and hire new employees. Existing employees may have perspectives on growth opportunities from which to draw from.
  • Seller Knowledge / Relationships Transfer – the Seller can be an extremely valuable source of knowledge and can facilitate the introductions to key customers, vendors, and employees. Tapping into the Seller’s experiences, you can potentially avoid pitfalls based on the Seller’s lessons learned and perspectives.
  • Assets – the business will often come with existing assets from which the business can continue to operate the business without having to make large capital outlays which can impact cash flows.
  • Seller Financing – in more than half of the lower middle market transactions, Seller’s often carry a hold back or promissory note. This additional source of funding can demonstrate the Seller’s faith in the business continuing to achieve financial success which also strengthening the case to a lender, SBA, conventional, or otherwise.

Some of the major disadvantages of acquiring an existing business include:

  • Upfront Costs – to acquire an existing business, you will need to invest and / or finance a large amount immediately which includes the purchase price of the business along with professional fees (i.e., legal and accounting, etc.).
  • Employee Disruption – employees may be extremely loyal to the Seller and may fear change of ownership may impact them negatively causing loss of productivity or the employees
  • Business Environment – no business is completely immune to competition or external factors that may affect the ability to maintain performance. The business may also have been poorly managed or have lost key customers and vendors due to personality differences or other damaging experiences / factors.
  • Additional Investment – after significant capital outlay to acquire the business, there may be substantial investment required to optimize assets or pursue growth programs
  • Relationships Transfer – many small businesses rely on the owner’s relationships. While the Seller may help facilitate the introductions to key customer, vendors, and employees, trusting relationships are often built over time. You will need to recognize the need to nurture and grow existing relationships while expanding relationships.

Is business ownership for you? Let P&L Business Brokers help in deciding if being an Owner is right for you.

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