Wouldn't it be great if instead of going through the hassle and hundreds of hours spent on developing a business plan and starting a business, we could just buy one already launched? Maybe.
The thought certainly sounds tempting.
Especially when you start searching for viable data that you can rely on when developing your business plan and you discover that an industry report costs thousands of dollars.
Without it, the reliability of the data you base your financials upon doesn't even sound realistic to you.
Even less to an investor whom you plan to turn into a partner or an associate...
Maybe it would be great if we could just avoid these moments that create headaches and nightmares and purchase the already launched business.
On the other hand, buying a venture it's like buying a used computer: you don't know what problems it has and whether it already has any viruses until you bought it and then it might be too late.
Yes...
it's true: buying a business helps avoiding the pain of planning and launching your own, and starting operations from scratch.
Buying a business means already having a brand name, loyal customers and well defined products, services and developed growth strategies.
If the business was successful, you have the responsibility to maintain the image the previous management team created.
If the business was not successful and you plan on buying it..
..
well, why are you buying it? Finding the reason why the business is sold is very important.
There may be various reasons: lack of expertise of the management team, low quality of products, limited resources to develop better products or to offer better services, etc.
Finding this reason is the most important action that must be taken when intending to buy a business and it must be done by a professional who can analyze all aspects of the company.
Secondly, the image the business has is very important as well.
Talk to your future competitors, your future customers and the business' suppliers and find out what the challenges of the industry are and what their opinion is of the business you're about to buy.
Based on their responses, find out if after you buy the business, you can satisfy their suggestions.
And most importantly, develop the business plan.
Don't think that just because you are buying an already launched business you are off the hook.
You still have to develop the business plan containing your pro forma financials to see what are the forecasted expenses and revenues for the first five years of operations after you buy it.
After the expert will analyze the business and you will finish the industry and market research, you will have a good idea of the chances of success the business has in the future and you will be ready to make a decision and plan accordingly.
Is it better to buy a business than start from scratch? Probably not.
When you start from scratch, you don't find yourself in the situation of fixing the mistakes the previous management team made, mistakes that reflect on the current revenues.
Depending on your expertise with start-up companies, starting your own business gives you flexibility when it comes to time and resources.
It helps you through your learning curve.
Buying an already launched business doesn't wait for you to catch up.
You must be ready to play the game according to the previous management team's rules and try to change them on the way.
Unless you keep the previous management team, it can be very overwhelming and tiring.
But if buying a business seems more challenging to you and a great challenge is what you are looking for, you have two options: buy a company's assets or buy the company as a going concern.
You should choose the option that is most advantageous to your goals, but no matter what option you choose, make sure you run an investigation of the current situation and estimate the future prospects.
If you want to buy a company's assets, whether it's equipment, location or anything else, make sure the bill of sale specifies exactly what you are going to purchase, with detailed descriptions, prices and attached key documents, and make sure all liabilities associated are mentioned.
Generally, it is better to use this type of purchase when the company has many hidden assets that the management team is not aware of and has not capitalized on yet.
If you buy the business as a going concern, it means that you want to own some assets which can be transferred otherwise.
Buying this way requires hiring an attorney, a business broker or a business appraiser and the process is complicated by a long, complex and intensive investigation.
However, the investigation will help you not overpay for the business.