There are many reasons why you may one day decide to own and run your own business. Perhaps your aspirations exceed your current station in life. Perhaps you are a natural entrepreneur. Perhaps you were fundamentally moved by the American dream. Or perhaps you just had a terrible case of the Mondays. Whatever your reason, once you’ve told your boss to take your job and shove it, you have a fundamental choice between two options – start a new business from scratch, or buy one from someone else.
Starting a business from scratch is difficult, and involves numerous risks. You need to market your business and build a loyal customer base. You need to find competent and reliable employees you can trust. And perhaps most importantly, you need to find a way to make money. In the entire history of business, the only entrepreneur who can run a loss-making business indefinitely is the government. But the government is good at tracking others’ failures – the U.S. Department of Labor notes that more than 50% of newly established businesses to go out of business within the first five years, and less than 35% survive for ten years.
Even more importantly, the key to any successful new business is having a good idea that no one else has had, or executing on it better than anyone else. Why go to that trouble, if you can buy that idea and/or that execution from someone else? As Stephen Friedman, the former chairman of Goldman Sachs, said, not everyone can be the first with a new idea, but there is no excuse for not copying a good idea quickly. A well-established and profitable business already has attributes which are essential to survival, further development and growth, such as the following:
It has already proved that it is a survivor. Like the jungle, the business world is Darwinist – only the strong survive. When you buy an established business, you are buying a tested formula that works. There is no need to reinvent the wheel.
It already generates both cash flow and profit. The graveyards of industry are littered with businesses long on profits and short on cash. While Wimpy may gladly pay you Tuesday for a hamburger today, businesses need cash flow like Tammy Faye Baker needed makeup. Well-established businesses have already addressed this challenge, which allows a buyer to pay himself a salary, reinvest in the business for growth, and, if necessary, service debt. Start-up businesses, by contrast, may require years to break even.
It has Goodwill. What is Goodwill? Goodwill is not just a fabulous place to pop some tags; it is also a boring but important accounting concept that establishes when a business is worth more than just the sum of its parts. A business which has been around for a while has already developed its reputation among customers. It has employees who are familiar with all the aspects of the business, as well as clients and suppliers. Its name and brand are recognized in the market, and it already has a presence – web site, social networks, phone number, etc. All of these elements significantly decrease the going concern risk for a new owner.
COMER BUSINESS BROKERS is ready and able to assist you with the exciting process of buying your dream business. We can help you to find it, structure a deal that makes sense, and close efficiently and with confidence, all while maintaining the strictest confidentiality of your personal and commercial information. We hope that this adds to your understanding of the process, and we look forward to hearing from you when you decide to take the plunge. Best of luck!