Are you having trouble getting your big business idea off the ground? Having trouble launching your initial product, getting initial customers, and generally launching to the world? Considering that over 50% of startups fail to make a dime of profit, consider joining the acquisition revolution, that is: Don’t start a new business, buy one instead.
Disclaimer: Always do your due diligence and work with an attorney and accountant when buying a business – Otherwise you may pay a hefty price in the future!
You have heard by now that business ownership is a proven path to financial freedom. But contrary to popular belief, you don’t need to actually start a new business from scratch to be a business owner or entrepreneur.
Closed Businesses For Sale Transactions
In fact, thousands of people opt to buy an established and profitable business each and every month rather than starting one completely from scratch.
So…have you ever considered buying a business instead of growing one from the ground up?
Here are three reasons why you might be better off buying one instead.
#1 Buying a Business Can Be Less Risky
Starting a business from ground zero is one of the riskiest paths to business ownership. Just think about it…for most first-time business owners this means:
- You quit your day job
- You start with zero clients
- You start with zero revenue
- You live entirely on savings or investor money for a long time
- You start with zero momentum
- You have to raise capital from angel investors or venture capital
- You have to get a startup bank loan
- You have to deal with ALL the things that come with starting a business…at the same time of actually trying to GROW your business
Put into a visual format…here’s how starting a business looks.
Startup Funding: The Reasons You Need It
Most businesses start out making operating losses since they spend money before they can make money.
Beware: Buying a business can also be extremely RISKY if you don’t do your research and due diligence on the assets or stock of the business you choose to buy.
There are many horror stories where eager entrepreneurs take over a company, finance the acquisition, and realize soon after that the business had hidden liabilities that they were then responsible for.
Examples of business buying mistakes include…
- Buying a business with pending lawsuits
- UCC liens
- Environmental penalties
- Government and regulatory issues
- Product defects and recalls
- and a number of other costly liabilities that can literally put your newly acquired business into the ground – and put your personal finances at risk – if you don’t perform the right research before buying.
Always do your due diligence and work with an attorney and accountant when buying a business.
Otherwise, you may pay a hefty price in the future!
#2 You Can Pay Yourself a 6 Figure Salary On Day #1
One of the greatest things about buying an established and profitable business for sale is that you can pursue businesses that already has the ability to pay you a salary on day #1.
Sometimes, the business owner is simply tired and wants to sell to a qualified party – and the business has absolutely nothing wrong with it, except…it needs a new owner!
There are literally thousands of business owners out there who would sell for the right price if you present the offer to them.
Is that owner you?
Now, many businesses for sale around you may be underperforming, meaning the current owner is not running the business as efficiently or profitably as another owner can.
And even if that business can’t pay you your ideal salary on day #1, you may be able to put your skills and energy to good use and improve the business so much that you make a great salary, plus distributions and dividends, if you so choose.
How To Evaluate a Good Business For Sale
- You are familiar with the market, industry and customers
- Minimum $100k+ in cash flow per year
- High-demand “everyday” services (HVAC, plumbing, IT, healthcare, transportation, fitness, health)
- Independent or part of a network of similar businesses (franchise beware!)
- You know nothing about the business
- Losing money and unprofitable
- Difficulty industry and hype-demand (fidget spinners, silly bands, gimmicks, highly regulated industries)
- Part of big franchise that requires big buy-ins and controls your destiny
If you can find a business owner who is looking to exit, sell, or retire, and that owner currently pays himself or herself $100,000 per year or more and still has a successful business, you may be able to pay yourself that same salary one day one.
And if you can improve the business’s cash flow over time, you can pay yourself even more.
Few startup businesses can offer a six-figure salary on day one. If you are still in doubt, go up and read point #1 again!
#3 You Can Finance a Business Acquisition More Easily
Financing a business acquisition is many times easier than it is to obtain a startup loan or startup financing for a brand new business.
For reasons including those above, a business that already has customers, branding, sales, profits, and cash flow, is generally less risky than a brand new and unproven startup venture.
As a result, banks, online lenders, and private investors are often much more interested in financing business acquisitions than they are at financing startups.
How To Finance a Business Acquisition
- Goal is to finance as much of the purchase price as possible using OPM
- Banks can finance up to 90% of the purchase price
- Sellers can finance purchase price
- Your cash requirements will be 10-30% of the acquisition price…
- But there are ways to get it to 0%!
It is common for well-qualified business buyers to get acquisition financing for 90% or more of a business’s purchase price.
Also, many times the current business owner (the seller), will be so motivated to sell their business to you that they will finance a portion or all of the business purchase price for you!
You read that correctly: You can buy a business using the current business owner as a bank and completely remove a traditional bank loan from the transaction altogether!
Few other business ventures offer such flexible financing options than business acquisitions using seller financing.
If you are sure you want to buy a business, consider approaching business owners in your area to get to know your local market, network with business owners who can help you find acquisitions, and learn the process of evaluating businesses for sale.
Go start networking, generate leads, and find yourself a business to buy!