Buying
Fundamentals
- Buy a business you like.
- Don't expect "traditional" financial
information from the owner of a privately owned business.
- Tax
returns of a privately owned business are prepared to show
as little income for tax purposes as possible.
- You and the
owner of the business should like each other.
- Commercial banks
won't lend you the money to purchase a privately owned business.
- The
owner of the business should finance the purchase.
- Don't pay
yourself out of cash - you will need reserves.
- You must make
an "offer" before you have seen all
of the financial and other business records of the business
you
are interested in buying.
Buy a Business You Like
Many business buyers think the most important quality in a business
is profitability. Certainly, you want a business that will have
sufficient earnings to provide for you and your family. BUT,
you will risk making a terrible mistake if you do not BUY A BUSINESS
YOU LIKE.
Suppose you find a septic tank cleaning business that makes lots
of money and can be purchased for a reasonable price with great
terms. Unless you want to pump septic tanks, the fact that the
business makes lots of money is of no importance at all. If you
bought this business because of the income, you will spend long,
miserable days in the business and will end up neglecting the
business and selling it later at a loss.
When you think about buying a business, think about what you
like and don't like. If you fix on a particular type of business,
visualize yourself running the business. Visualize taking your
friends and relatives to see your business. Do you like what
you see? Will you be proud to own the business? If not, or
if you are not sure, don't buy that type of business.
Be Flexible
You will have to be flexible in finding a business. If you
lock onto only one type of business, it will take you much
longer to find a business to buy. We like to start a buyer
thinking about what they like and don't like using the following
broad categories of businesses. First decide if there are any
categories that you absolutely do not want to be in. Then focus
on the remaining categories and review the characteristics
of these categories as presented below.
-
Retail
- Service
- Manufacturing
- Distribution
- Restaurant
- Lounge
- Coin operated businesses
Once you have selected a primary category, you can begin to
look for a business in earnest. You will find many different
businesses within each category that share the primary characteristics
of the broad category. You will then have to "fine tune" your
selection. For example, within the retail category, we have
clothing stores, shoe stores, boutiques of all types, bicycle
shops, etc. Within the restaurant category, you can choose
from full service restaurants to ice cream stores. JUST BE
SURE YOU LIKE IT BEFORE YOU BUY IT!
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