At one point in time or another, most of us have experienced the urge to do something entrepreneurial.
The chance to be the master of your own destiny, and your investments, can be alluring.
But it can also be very frightening. We’ve all read about the high failure rates of new start-up business. A recent article that I read noted that 23 percent of new business wouldn’t even make it past their first birthday, and more than half will fail to make it through three years.
The reasons for this are numerous. Bad management, poor business concept, insufficient operating capital, weak customer base, strong competition, or even just plain bad luck can individually or collectively contribute to a business’ failure.
Owners of new businesses need to juggle a multitude of details such as product and service positioning, branding, marketing, employee hiring and training, site location, choosing vendors, establish terms, etc. Even when all the stars are aligned and correct decisions are made, it can be months or even years before the owner begins to experience positive cash flow.
Many entrepreneurs choose to avoid these dangers by becoming a business owner by purchasing an existing business instead of trying to start one from scratch.
There are many reasons for this. Successful existing business have a proven track record of profits that generally continue long after a business has been sold as a new owner, the buyer can take the business to even higher profitability by instituting new ideas, expertise and energy.
A business with a well-know name, location, product mix, knowledgeable employees, etc., will enable the new owner to focus on long-range strategic planning rather than day-to-day minutiae.
There will be no suffering through an extensive start-up period as the new business’ established customers can serve as the base for future business growth.
An existing business can also be attractive to a buyer because they are often able to leverage their leverage their investment by having the seller carry a note. This ensures that the buyer gets the maximum bang for their investment dollar.
Seller financing creates another important benefit for the buyer. Because the seller will want to do everything they can do to ensure the success of the new owner, a training period can be negotiated where the seller sticks around to ensure a smooth transition.