You have the opportunity to buy an existing small business. What should you consider? There are many things to think about and you need to make sure that this is a good idea for your current financial situation and long-term goals.
On this Golden Nugget of The ROI Online Podcast author, consultant, and entrepreneur Josh Patrick shares what is it that you need to buy an existing small business.
Here are five of the top considerations before buying an existing small business:
1) Will I Be Able To Handle The Required Workload Alone?
2) What Is The Current Cashflow Situation?
3) What Are My Options If I Want To Sell The Small Business?
4) How Much Is A Sale Expected To Cost Me And Does It Include Repairs, Leases, Etc.?
5) Can I Afford To Purchase And Operate This Small Business?
Buying a small business can be one of the best decisions you make. The only thing to consider is whether or not it’s the right time for you. Before buying, there are many things to think about and you need to make sure that this is a good idea for your current financial situation and long-term goals.
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What small business ownership is and what are the benefits of small business ownership?
Small business ownership is when the person who owns that small business has their name on it. This means that they own a small business and have a say in how it runs. There are many benefits to small business ownership such as being your own boss, having more freedom to make decisions about how the small business works, and having a stake in your small business’ success.
What is small business failure?
A study found that about 40% of small businesses fail within two years. That number increases to 60% within five years. It seems like most small businesses don't last very long in comparison to large businesses. They usually don't last because small business owners don't know how to run small businesses. This small business failure is better known as the small business’ lifecycle.
What small business failure is, and what are small business failure causes?
Small business failure is when a small business doesn't turn out the way the small business owner had hoped for. There are many causes of small business failure such as lack of preparation, lack of knowledge, lack of money, and competition with other small businesses.
Josh Patrick shares with us that first of all, you want to find out what is it that you like to do?
"I mean, are you going to buy a franchise and start from scratch? Are you gonna buy an existing business that is a franchise, go from there and use their systems? Are you going to buy a business as existence right now, that has pretty good systems in place and you plan to just go ahead with that? Or you're going to buy a business where you're gonna have to fix it and make things work and have systems when learning how to delegate and get recurring revenue?"
All the stuff you need to do to make a business that's not very successful work you're gonna be able to buy for very little money. A business that's highly successful, well you're going to figure out if you don't have a few $100,000 sitting around that you can put in, you're probably gonna have a challenge finding a business that's viable, because the owner is not likely to want to take 90% of the sale on paper, and a bank is not going to loan you the money.
But there are ways of doing that, where say you can come up with 20% or 25%, maybe you can do a second mortgage on the house, there are people who take money out of retirement plans, which Josh does not recommend for a variety of reasons. But if you can come up with that 20% in the way you could do it as you go up with 10%. Down yourself which the owner gets, the owner does 20% financing, but the subordinate themselves the bank, which means the bank is in first place, now you got 70%. And you get an SBA loan with a subordination. And now you got your money down so you can actually buy the business, it's actually very doable. You just have to start thinking about, I'm going to have to personally guarantee number one, I'm going to be taking financial risks. And if this hasn't worked out, it's going to cost me some real economic pain. So you wanted it but it's much easier buying a business, even if you overpay for it a little bit, not a lot, and move on from there than trying to start a business from scratch. Because you have a business that already has a cash flow of some sort.
Small business ownership can be a great way to make money and have control over your own destiny. However, small businesses fail all the time because small business owners don't know how to run them well or adequately plan for their success. This article has provided you with five considerations before buying an existing small-business so that you are prepared and knowledgeable going into this endeavor. If you're interested in owning a small business of your own, but unsure if it's right for you, read on! We've compiled resources to help guide small business owners through what they need to do first step by step during the process of purchasing a small business so that they may succeed as entrepreneurs.