The Benefits of Buying vs. Starting a Business

So you want to be your own boss.  Consider the options – starting your own business vs. buying an existing company. 

Starting a business of your own can pay great dividends, but it’s important to understand that the risks are significant.  According to Michael Gerber, author of The E-Myth Revisited, 40 percent of new businesses fail in the first year and 80 percent fail within five years.  

On the other hand, purchasing an existing business reduces an entrepreneur’s risk while creating opportunities for tremendous profit. 

 There are a number of reasons to consider the purchase of an existing business rather that starting one: 

• Risk.  An established business with strong cash flows is far less risky than a startup.
• Branding. The ongoing benefits of any marketing or networking the prior owner has done will transfer to the new owner.
• Proven Concept.  A business with a track record is more likely to qualify for credit.  A bank can rely on historical financials, not just projections.   
• Key Personnel.  The employees have already been trained and assimilated into the company culture. You will have an easier time implementing growth strategies. 
• Focus.  The seller has already laid the foundation and taken care of the time-consuming, tedious start-up work. You can focus on improving and growing the business immediately.
• Goodwill/Relationships.  You will have an existing customer base and vendor base that took years to build.  It’s very common for the seller to transition with the business for a short time to transfer those relationships to the buyer.   
• Cash flow. Typically, a sale is structured so you can cover the debt service, take a reasonable salary, and have some left over to take the business to the next level.  On the other hand, start-up businesses aren’t expected to profit for the first three years.

Becoming your own boss always involves a risk.  When you buy a business, you take a calculated risk that eliminates a lot of the pitfalls and potential for failure that come with a startup.  “Working for someone else is trading time for money, but doesn’t build equity. As an entrepreneur, you are the master of your own destiny.”

Source: IBBA website

The New Job Security

When you think of going into business, what comes to your mind? Most people conjure up visions of a brilliant idea and building a company from scratch—successful for some but not usually without deep pockets, substantial risk and a workaholic lifestyle. There are no existing customers, no sales and little to no immediate revenue. You need to market your business, hire and train employees and hopefully establish a cash flow… all without a track record or reputation to go on.

 

These are some of the benefits of buying a business instead of starting one:

• Less Risk. You walk into an operation that already has revenue and profit.
• Relationships. You have a well established customer base, a good track record and a competitive edge because of the company’s tenure.
• Financing. The banks are more willing to provide financing to buy an existing business versus funding a new venture.
• Employees. Included in the purchase of a business are loyal employees who know every aspect of the company. You don’t have to reinvent the wheel by developing procedures, systems and policies, since the blueprint for running a profitable business is already in place.

Best of all, you don’t have to compete for that ever elusive “secure” corporate position that could evaporate, in the name of downsizing, restructuring or reorganization… taking your benefit package with it. That’s what the new owners Detlev and Anke Braatz considered with their recent purchase of Paulette’s Cleaning Services, a commercial cleaning business on Vancouver Island. “Despite our years of experience and education, we just couldn’t find jobs” says Anke. “So we looked for a business that was up and running, something we could easily do.” Thankfully,” she adds, “our business broker helped us protect our interests with a Due Diligence Checklist, a step-by-step process that was invaluable. Our clients are happy as are our 9 employees and we continue to have the support of the previous owner.”

 

Working for someone else is trading time for money, but doesn’t build equity. As an entrepreneur, you are the master of your own destiny.

 

If you are considering business ownership or the sale of your business, we can help. Visit our local website at http://www.bcbusinessbroker.ca/ or www.sunbeltnetwork.com/vancouverisland or phone 1-877-289-0969.

 

10 Questions To Ask When Buying a Business—Do Your Homework!

Published in Nanaimo Magazine - December 2010 Issue

Buying a business is an arduous, yet rewarding process, and can take weeks or months. Because buying a business will involve investing a fair amount of money and time, it is critical to do your homework when gathering information about the business. This process is commonly referred to as due diligence.  It helps the buyer discover information such as whether the purchase price of the business is too high; the type and condition of the business being bought; bad financial situations if they exist, and contingent liabilities. There are so many questions to ask when considering the purchase of an existing business. In fact, there is not enough room on this page to list them. But let us give you a few examples that relate to financial, marketing, ownership and operations: 

1. Ask why is the seller selling—and verify the answer.

2. Ask to review the certified financial statements of income, cash flow and balance sheets for the last three years. If you borrow from a bank to pur- chase the venture, the bank will want to see them.  Recent audits and projections should also be reviewed.

3. Ask  to see the company’s Tax Returns (not the owner’s personal) for the last three years.

4. Ask for a copy of all documents of all outstanding indebtedness like notes payable, accounts payable, real estate and equipment leases.

5. Ask if the seller is willing to stay around for awhile after the sale to help with transition.  If so, have you discussed some compensation for his/her services during that transition period?

6. Ask if there has been any significant turnover of employees. If so, why? Ask to see employment agreements and organizational charts.

7. Ask about the quality of customer relations at the company. Review customer lists if possible.

8. Ask about the relationship between the company and its vendors. Do vendors display preferred, regular or irregular relations with the company?

9. Ask to review key contracts.  Also ask to see any litigation-related documents.

10. Ask for information about patents, copyrights and other intellectual property-related documents.

If you are contemplating small business ownership, feel free to give the Sunbelt Nanaimo office a call at 1-877-289-0969 or visit the website at www.bcbusinessbroker.ca or www.sunbeltnetwork.com/vancouverisland - we can help you find a reliable business that suits your background.  We are Certified Business Intermediaries with special training to help our clients analyze business opportunities and assess future probability of success.  President of Sunbelt Business Brokers, Michael Naprawa, is the Director of Education for the Canadian Chapter of IBBA (International Business Brokers Association), an organization that creates business standards and a code of ethics; and creates training and professional designations for Canadian Business Intermediaries.  Feel free to contact our Nanaimo office with your questions or comments.

View the article and check out Nanaimo Magazine here

2010 Highlights of Small Business in British Columbia

Published October 2010

BC - The government has released SMALL BUSINESS PROFILE 2010, a 36 page report that profiles small business growth and development in the province. Here are the key highlights.
Small businesses account for 98 per cent of all business in the province, with approximately 395,900 small businesses operating in British Columbia in 2009. Of those more than half (56 per cent) were self-employed and the rest (42 per cent) had fewer than 50 employees.
Only Saskatchewan, which has 89.5 small businesses per 1000 people, has a greater number of small businesses per capita. This puts BC, which has 88.9 small businesses per capita, well ahead of most other provinces (the national average of 72.0).
How does this translate into economic value? Small businesses provide enormous support for employment and also contribute to the province's gross domestic product (GDP).
Small businesses in the province account for 57 per cent of private sector jobs, the highest rate nationwide, and employed 1,045,400 people in 2009. On top of this are 443,800 self-employed worker, who tend to be older, are more likely to work longer hours than employees working for others and are also more likely to be male.
In terms of production, small businesses in the province accounted for roughly 32 per cent of BC's gross domestic product in 2009 and 41 per cent of the total value of goods exported from the province in 2008.
Read the report SMALL BUSINESS PROFILE 2010 to learn more about the state of small business in British Columbia.

Article: http://www.canadaone.com/ezine/briefs.html?StoryID=10Oct18_2

Not Ready to Say "I Do"?

Published in the October Issue of Nanaimo Magazine.

See published article here: http://www.downtownmagazine.ca/nanaimo/nanaimomag.php

Even though you know you’re ready, sometimes it’s still hard to commit—to leaving that is. When the perfect buyer finally makes you the offer you’ve been waiting for, you get ‘cold feet’ and feel the urge to run from the proverbial alter. And then come the questions: “Do you take this buyer as the long awaited answer to your succession plan, as long as you live? Does anyone here object to the marriage of this buyer and seller?” Hmmm, you think to yourself... yes, no maybe, no, you’re not sure…After all, you were the one who took the biggest risk. You were the one who planted the seed, watered it and nourished that business from its infancy into the successful going concern it is today. Are you really ready to let it go? Did you get enough money? Maybe you should have held out for more?

It’s not surprising that business owners, however excited they may be about hitting the golf greens, moving or starting a new venture, signing on the dotted line and handing over the keys can be difficult process. That’s where BC Business Brokers use their skills to work with their clients in reaching their goals. If you are feeling the jitters about selling your business and opening the next chapter of your life, here are 5 tips to help you warm your feet:

1. Recognize that it’s normal to have second thoughts for any event that requires a life-altering decision.
2. Acknowledge that people fear the unknown, especially when it means leaving something that’s been a big part of their lives.
3. Stay focused on your original goal—if you want to retire or change careers, feel the fear and DO IT anyway.
4. Stay grounded—don’t get greedy! Just like the stock market, those who hold out for the highest price often lose it all.
5. Realize that your perspective is strongly influenced by emotion and thus, your outlook may be skewed.

BC Business Brokers utilize their knowledge of the industry within the context of the current economy to bring perspective to every transaction. These professionals receive in-depth training through the IBBA University (International Business Brokers Association), achieving their CBI (Certified Business Intermediary) designation. Affiliated with the largest global business brokerage and a network of 300 licensed offices worldwide, effective business advisors bring together buyers and sellers and foster a mutually agreeable deal for their clients. We coordinate each business transaction by working together with our clients’ lawyers, accountants and financial planners. Business Brokerage is all about relationships and connections—helping clients overcome the hurdles so they can confidently say “I do!”

If you are interested in exploring business opportunities or are contemplating the sale of your business, feel free to give the BC Business Brokers office a call at 1-877-289-0969 or visit our websites at www.bcbusinessbroker.ca or www.sunbeltnetwork.com/vancouverisland.

10 Tips for Buying a Small Business

Based on a survey conducted by Merger Network in 2009 among 350 recent buyers, a list of 10 Tips for Buying a Small Business was compiled.

1. Activate your Social Network. Friends, relatives, and business associates are the best resources to tap when it comes to looking for potential business opportunities,   according to recent buyers. Business intermediaries are another potential source for finding out about new business ventures. The majority of respondents indicated the web as the top place to start your search.

2. Get your financial house in order. One of the first things buyers suggest is to get your financing in order. Be sure you have enough money to cover costs for 12‐18 months, add 50% to your   estimates for unforeseen expenses and don’t forget about advertising and marketing budgets. Respondents cautioned prospective buyers to keep the economic downturn in mind when preparing forecasts. Be conservative and be prepared.