Many hopeful entrepreneurs can’t wait to get started doing business. They save up, for years so that they can afford to purchase the capital, licensing and permits that they need to get started. Some of these hopefuls, may come from a background of entrepreneurship and have experience in the field of business. They know how to start up their businesses in the most economical and efficient way to yield a profit. Others may be coming out of employment positions or just starting to work with little or no experience in business. This prompts the subject of purchasing an existing business or “business opportunity“. Many seemingly appealing features may come with these opportunities. So are they for you? Here are a few things to consider.
If you are someone who is interested in starting a business but has no experience in the field, you may be considering purchasing a business. Most “business opportunities” offer potential buyers their equipment, contacts and other resources. This may seem like a very opportune transaction that allows you to get straight into the business without having to worry about all the technicalities of starting up. However, this can come at a price, usually a very high one. You should remember that those selling their business are pricing it at the opportunity cost of them not being able to earn an income from the business. They not only lose their business, when selling it, they lose the opportunity for them to continue operating and profiting from it. So they must price accordingly. This may mean that the price for the business may be significantly higher than if you were to purchase the equipment, licensing and permits yourself.
Purchasing a business leaves for little flexibility. There may be some aspects of the business that you would like to forgo. A fully decked out store, with the latest technology, a full staff, and a prime location can be a bit much for someone looking to start small. However, this is not usually an option when purchasing a business. Many times, owners are looking to get the entire business off of their hands and do price accordingly. As a result, prices are usually firm and it becomes an all or nothing transaction. This could put you, unnecessarily out-of-pocket.
Finding the right business to purchase also has its difficulties. It is very hard to find an incentive to sell off a successful business opportunity, so many successful business are often not for sale. As a result, many of the businesses that are left for sale, may be on sale for a unfavorable reason. Oftentimes, owners will look to get out of a business because they are not bringing in enough revenue to profit. For whatever reason, they may choose to sell these unfavorable businesses and buyers may find themselves in the exact same bind.
To avoid this, it is important that you research the business carefully before you do decide to purchase. Researching the costs and strings that may be attached to purchasing these businesses such as, high rent rates, back taxes owed, consumer complaints, slow sales, and other information can save you a lot of time and money. Finding out the reason why the owner wants to sell, is a good way to start. Sometimes owners will look to sell because of health reasons, personal responsibilities and outside forces that prohibit them from continuing to operate the store. These are probably the best reasons that you will find. If the owner doesn’t give you a reason or complains about the business, these may be warning signs that you need to be aware of.
Before purchasing a business, consider the costs involved, your own ability to start from scratch the most cost effective way, and the reasons why owners are selling. Extensive research and pro activity can save you a lot of trouble when investing.