Q&A - Business Owner Issues

 

Topic:  Business Owner Issues

Q: Last year I took advantage of an early retirement offer after working for the same company for 25 years.   I've had enough of early retirement and recently began to give some thought to purchasing a small business.  Do you have some tips or guidelines for me to follow?

A: Corporate layoffs, early retirement opportunities and an entrepreneurial spirit have prompted many people to consider starting their own business.  While starting a business "from scratch" is the most popular method, many prefer to buy an existing business.  Purchasing a going concern offers several advantages:  assets (including employees) and customers are already in place, a proven track record (hopefully) exists, start-up costs are lower, and existing businesses are usually easier to finance.

If the idea of buying a business appeals to you, here are some ways to shop for the one that's right for you.

Identify what you want to do .  Do you want a business that's related to your former occupation, or something you've never tried before?  What skills do you have that you can apply to the business?  These may be avocational skills and interests as well as vocational skills.  A Certified Financial PlannerTM professional can help you explore your options to identify a good match of interests and skills... the right kind of business for you.

Prepare a plan.  Crafting a business plan will help you identify and focus on critical business goals and the financial and other resources that will be required to meet them.  A Certified Financial PlannerTM professional can help you develop this plan.

Look around.  A prospective business might be right under your nose - a small insurance agency you've done business with, a favorite restaurant, or a bed-and-breakfast inn that you're fond of.

Ask around.  Maybe the flower shop you're looking to buy isn't selling, but the owner knows of one that is for sale.  Talk to co-workers or business contacts, especially if you are pursuing a business related to your former line of work.  You can also identify prospects through the "business opportunities" listing in the classifieds.   Business brokers keep listings of companies for sale.

Ask why the owner is selling .  Owners sell for a variety of reasons.  It may be for retirement, ill health, or a desire to change businesses.  On the other hand, it could be because of unprofitability, unsettled lawsuits, or anticipated poor returns in the near future.  Some of these reasons may not necessarily be bad.  The business may lack profitability because the owner isn't doing a good job of management, and you may be able to do better.  Some experts argue that good companies usually are too expensive to buy, and that buying a sick company and turning it around is often the best approach.

Visit the place.  Is it busy?  Are the phones ringing?  Does the atmosphere appear inviting?  Does it feel like a place you want to invest your time and money in?  Do you see ways you can make it better - and more profitable?

Talk to everyone you can .  Besides the owner, talk to key employees, suppliers, key customers, and competitors.  Are suppliers people with whom you want to work?  Is a major customer scheduled to end a profitable contract soon with no plans to renew?  Is a new competitor expected to arrive on the scene that could hurt the business?  Visiting suppliers and customers can be tricky, since the owner may not want word to leak out about any impending sale before the deal's done.  You want to be sensitive to the owner's wishes, but you don't want to buy blind either.   Weigh what you hear and see about the business against what the owner told you about why he or she is selling.

Is the seller willing to stay on ?  A seller willing to stay on for a while as a consultant can help you make the transition.  A seller anxious to cut and run may not bode well for what he or she is leaving behind.

Sell yourself.  Get your finances in order.  A smart seller will check out prospective buyers as closely as buyers should check out the seller.