ENTREPRENEURSHIP THROUGH ACQUISITION
A Reliable Alternative To Chasing Unicorns
Why There's No Better Time Than Now to Buy a Business
So, if you’re thinking about buying a business, you’ve likely considered the risks and the rewards.
Buy a Business
There is no better time to acquire a business more than now.
So, if you’re thinking about buying a business, you’ve likely considered the risks and the rewards.
What you might have also questioned, however, is the timing. Before you walk away from closing a deal, let us outline why there’s no better time than now to buy a business. Here’s why:
Valuation
More businesses have sold in 2021 than in previous years. This is because recent market trends have shown the economy rebounding. More buyers are looking to sell, given the increased valuation. As a result, you have more room to negotiate a price you can "deal" with as a buyer. Private and public companies continue to grow in this market, increasing demand for profitable companies.
Business Availability
Additionally, business owners in 2020 took time to rethink their life aspirations. Many, chose to list their business for sale to retire and spend more time with their family. The ease of virtual business deals increased significantly over the past two years. Business listings that solely existed outside of the “www” decided to make their listings available online. Over 440 thousand businesses were started in 2021. There are several businesses for sale, but when it comes to investing in the right one, BizNexus has you covered.
Financial Support
Moreover, from personal banking, VCs, partnerships, angels, crowdfunding, grants, and more, there are many ways to obtain the funds needed to buy a business. Be careful, you want to choose the option that best fits your needs.
BizNexus helps you find a business for sale that’s right for you.
Whether you’re looking to buy a business to diversify your portfolio or a first-time business extraordinaire, BizNexus can help you get started!
Featured Posts on Buy a Business
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BUSINESS ACQUISITION
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Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
Why Business Acquisition Is Smart Investing
Want to know more about acquiring businesses and how business acquisition can benefit a portfolio? Read on.
Is Business Acquisition a Smart Investment?
9 reasons why it is smart investing!
Business Acquisition - 9 Reasons Why it is a Smart Investment
Positive income opportunity
Greater appreciation potential
Easier access to cash
Established expectations
Established brand
Promote goodwill in the community
Acquire with other’s people money
No more foundation work needed
Many business owners want to sell
Smart investing is about taking calculated risks with a bigger upside than a downside. Financial advisors will point you toward slow-growth index funds and conservative stocks as the key to getting rich.
However, business acquisition can be an even smarter investment decision with a far greater upside. In the following article, we'll discuss why it makes sense to buy an existing (successful) business. First, let's look at your options.
Online Businesses
Business models like online courses or software as a service (SaaS) give entrepreneurs like you a chance to establish ongoing passive income from proven informational products. The info-boom is a huge business with players like Udemy and Clickbank opening doors with existing online infrastructure.
Brick-and-Mortar
A brick-and-mortar business gives you better access to built-in brand recognition that helps you stand out. Geographical location also opens doors to impulse buyers in a way that you just can't enjoy online. The overhead is usually much larger though, with employees, payroll taxes, utility bills, and real estate to pay for.
Once you establish the type of business to buy, it's time to reap the benefits. Here are nine reasons that business acquisition makes for smart investing.
Buying a Business Can Be a Passive Income Opportunity
Establishing a business isn't passive. Working in your business isn't either. However, buying a business that's already got a track record of success and the support system to keep it going can offer the buyer total passivity.
At the very least, it will be a business investment that you don't have to constantly worry about. One that provides you with ongoing access to liquidity and growth potential.
Businesses Have Greater Appreciation Potential
The ROI on buying a business is not guaranteed, but neither is the return on a stock, mutual fund, or cryptocurrency. That said, stocks and mutual funds often are touted as better investments because of their long-term returns of 7-8 percent per year.
You might save enough money to retire that way, but you're not going to be on the fast track. Successful businesses can produce year-after-year returns that are exponentially higher.
It Provides Easier Access to Cash
One of the big benefits of buying a business is that there is already some record of liquidity established. The business wouldn't be operational without customers. Customers wouldn't be customers if they weren't spending.
Owning a previously established business gives you quicker and, more importantly, predictable access to cash if you need it. Investing in a retirement account, in contrast, ties your money up for several years. During that time, you can't access it without paying state and federal taxes along with an early withdrawal penalty, which is usually 10 percent.
Business Acquisition Gives You Established Expectations
If you were starting from scratch, everything would be a hunch. Hunches have a harder time finding investors, lenders, or any other source for getting your business off the ground.
Investing in a business that's already established gives you direct access to past sales. It shows you what has worked and what hasn't. Using this data, you can map out what to expect from the current performance and future growth.
It Removes the Challenge of Brand Building
It's said that it takes 5 to 7 impressions per person before they will remember your brand. Impressions, meaning that your branding is placed before a potential customer.
That means finding just 1,000 customers requires that you connect with them 5,000-7,000 times. That's a lot of work to be doing on top of everything else that your business requires of you. Acquiring a business allows you to inherit your existing customers and any continuing word-of-mouth marketing they might provide on your behalf.
It Can Help Promote Goodwill in the Community
Buying the right business gives you some built-in goodwill with your community. This especially is true if you plan to keep the existing jobs in place and any record of charitable activity.
It's a smart business strategy to become an active part of your community. That's why many new businesses will join the chamber of commerce and sponsor events from which they will receive no direct revenue.
They know that establishing themselves with their neighbors will spread brand awareness and goodwill, and it will set them up for future profits. Buying a business means inheriting that goodwill from the previous owners' efforts and committing to continue it forward.
You Can Buy Using OPM
OPM stands for other people's money. One great thing about buying a business is that you can use it instead of your own if the numbers make sense.
This is much tougher to accomplish with an unproven idea that has no development or track record. Using OPM is easier in the business acquisition scenario because you can point to a history of past sales and profits to convince lenders to pony up the cash.
You Do None of the Foundational Work
Starting a business requires a lot of groundlaying work. You have to develop the product or service, market it, hire workers, deal with bookkeeping. Buying a business means there is some template for all of this that you can use or adjust to suit your needs.
Many Business Owners Want to Sell
Not every business owner is ready to get out but many would for the right price. One need look no further than the trillions of dollars worth of companies that are currently being represented on the open market.
The reasons for wanting to sell your business can be many. One common driver of it is that too many owners never make the leap from working in their business to working outside of it.
It consumes too much of their time. Their constant mental and sometimes physical energy is required to keep things on track. Pretty soon, that dream of "being your own boss" feels like you have too many bosses.
Smart Investing Is About Calculating and Minimizing Risks
Smart investing means embracing risk in a sensible way. As you can see, buying an established business allows you to calculate your returns, set realistic forecasts, and skip many of the steps that go into starting your own business.
Good luck, whatever you decide! For more helpful tips and information on starting a business through acquisition, subscribe to our newsletter today.
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BUSINESS ACQUISITION
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THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
7 Things to Know Before You Buy a Business
There are many different facets to consider, from how to check if you are legally covered to managing new staff. Read on as we give our seven essential tips to know when you buy a business.
Buy a Business
Here are 7 things to know before you buy a business.
Buy a Business? Seven Tips to Follow:
Pick the right industry
Know what you want
Do in-depth research
Make sure you buy the assets
Prepare to make tough staffing decisions
Always get seller indemnity
Check all prepaid expenses
Did you know that around half of all businesses will have failed by their fifth year?
With this starting period being the crucial years for a company, it makes sense to buy one that is already running. But do you know how to find a purchase a business successfully?
There are many different facets to consider, from how to check if you are legally covered to managing new staff. Read on as we give our seven essential tips to know when you buy a business.
1. Pick the Right Industry
It is important that you buy a business in an industry you know, for a number of reasons. Firstly, you need hands-on knowledge of how that business works from the ground up. No one likes a business owner without experience.
Secondly, knowing the industry means knowing the state it is in. Is the market in decline, or is it set for a huge boom period? Without knowing this, you could buy a business that is already doomed to failure.
Start by making sure you have worked in the industry. Take six months out to go and work on the factory floor or make calls in the office. This will give you a much better understanding of how the whole place operates.
2. Know What You Want
When you take your first steps into acquisition entrepreneurship, goals are going to be at the center of everything you do. People who take over businesses need to set goals for everything from customer service standards to profit. Without them, it is impossible to measure the success and growth of the business.
What many people fail to address are their own personal goals. When you buy a company, other than increasing its turnover, what do you actually want from it?
Some people will go into the business with a goal to sell it later down the line for increased profit. Others may be going into it for life and may plan to pass it on to their children. Knowing what you want out of the venture makes it easier when setting the short, medium, and long-term goals of the business.
3. Do In-Depth Research
Once you have seen a potential business, then you need to do your research. The internet is the first place to begin your business valuation. Delve deep into the company's history, its financial records, and any news articles related to it.
Once this is done, begin to branch out. Do the same for its main competitors. Look at others in the chosen sector, or a geographical region if it is a brick and mortar business.
4. Make Sure You Buy the Assets
When a corporation or LLC decides to sell a business, you need to make sure you are not just buying stock. It can work out much better if you offer to buy the assets instead. From here, form a separate company that would act as the buyer.
The reason for this is twofold. First, if the business owes money, is in debt, or is being sued, then you are no longer liable, as you are not the business owner.
In addition, you will get better tax deductions on the assets. They will be judged by the price you paid for them, not the price the prior owner paid for many years before.
5. Prepare to Make Tough Staffing Decisions
When you take over a new business, it is natural that you'll want to do some things differently. Even if the previous business model worked, you will have ways of improving and adapting. Inevitably, this means that some people will have to go.
As the business models change, certain people or departments will become redundant. Unless you are willing to spend lots of time and money retraining them for new roles elsewhere, then they are no longer needed. Even if you do this, they may not be as interested in a different role.
Be honest with people about the reason for the dismissal. Give them fair severance packages and thank them for their service.
6. Always Get Seller Indemnity
From the business valuation to the period of due diligence, you will have gone through the company with a fine toothcomb.
However, you can always miss something. If that is something that could lead to the company being sued down the line, you'll take the wrap.
Indemnity can be placed as a clause in the contract. It states that if any lawsuits occur in the future as a result of something that was done before you took over, the previous owner will defend the case, paying all fees and judgments. They may also want an indemnity clause for anything that you may do after the closing takes place.
7. Check All Prepaid Expenses
Before buying, check how many prepaid expenses are in place.
For example, the company may have annual software leases or in-place advertising that costs thousands of dollars. You don't want to find out about this midway through your first year without having included it in your financial projections.
In addition, do not forget to check any leases on offices, shops, and warehousing. Make sure this will be carried on when you take over the business. Check if there are any clauses or stipulations, such as whether the rental price is fixed or may soon be facing a raise.
Want to Buy a Business Near Me? Get Assistance
When you buy a business, it pays to get assistance. There are many sites online that can match you with potential sellers and ensure a smooth handover.
Your first stop should be BizNexus. Set your targets, get matched with a business then connect with potential sales quickly.
Click here to sign up and let us help find your next opportunity starting today!
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BizNexus -Learn More From Our YouTube Playlist:
BUSINESS ACQUISITION
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THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
How to Buy a SaaS Company
While buying a company is a good idea, you need to do a lot of things before buying a SaaS business. This guide covers how to buy a SaaS company and several steps you should make to ensure a seamless buying process.
Buy a SaaS Company
We’ve put together 6 tips to help you out when buying a SaaS Business for sale.
6 Tips to Successfully Buy a SaaS Business:
Options: buy vs. build
Where to buy a SaaS business
Understand the prices model
Check out the source code
Check acquisition channels
Understand the competition
SaaS continues to show its dominance and is expected to generate an astounding $141 billion in 2022. If you're looking to buy a company, buying a SaaS business would be a remarkable idea.
Living in the cloud means that the SaaS model was not affected by the pandemic, making it one of the most attractive business options.
It has proven to be exemplary lucrative with very enticing options in terms of scalability. It also means that SaaS businesses are valued differently compared to most other businesses.
While buying a company is a good idea, you need to do a lot of things before buying a SaaS business. This guide covers how to buy a SaaS company and several steps you should make to ensure a seamless buying process.
Should You Buy a Company or Build One?
Why buy a company when you can just build one?
One of the most significant benefits is that you'll save time. Building a SaaS company involves building software, which takes a specific skill set that most people may not possess. It would take you a considerable amount of time to build your sass products from the ground up.
When you purchase a SaaS company, you'll not only get the software but a few years’ worths of market data as well. It will give you a sufficient baseline to work and allow you to focus on improving and scaling the business.
Consider Where To Buy the SaaS Business
If this is your first time buying a SaaS business, then you may not know where to start. You face two options, which are to buy from a private seller or a broker. You need to conduct a market evaluation.
The main difference you will face between a private seller and a broker is the vetting process.
A broker will vet numerous businesses that are trying to sell. Vetting the account is one of the most important steps you can take when you want to buy a company, so decide whether you want to jump into the numbers or have a broker do it for you.
Having a broker doesn't necessarily mean that you should overlook your due diligence. It means that they will take the weight of the load from you, and all you have to do is verify what they bring to you.
If you choose to vet yourself, you'll find that most businesses offer screenshots of their account to back up the traffic and revenue claims.
This proof should not be enough, though, and they should grant you viewing permission to their analytics accounts. These accounts will show you whether the valuation matches the business performance.
You should also ask to see the profit and loss statement and any other additional expenses you should know about before you buy a company.
Some people purchase SaaS companies with seemingly good revenue figures but later realize that the high expenses involved lower the net profit. You can catch problems that you may be able to fix. For instance, you could eliminate SEM advertising if you're good at organic SEO.
Understand the Pricing Model
Once you identify where the money is coming from and the strengths and weaknesses of the business, you should understand its pricing model. A SaaS business’s pricing model can be the difference between having no subscribers and millions of them.
There are several SaaS pricing models available. The payment option can be Monthly Recurring Revenue or Annual Recurring Revenue.
Monthly Recurring Revenue is usually the preferred method because it requires low payments up-front to new customers, and it's easier to track business performance.
One of the most significant results for you to conduct a thorough review of the market is to look for opportunities. Besides checking the SaaS company’s legitimacy, market opportunities will play a huge role in your business’s future.
Decide whether you would like to change it from a flat fee system to a tiered system instead. Such a move will make it more appealing to your target market and, in turn, speed up your ROI.
Check how many active subscribers the software has, then look at the churn rate and the customer lifetime value. It will give you a better idea of how the company works. Check how many free users are involved and whether you can offer them low-tier payments to generate revenue.
Check Out the Source Code
The source code is arguably the foundation of a business. A robust source code technically means the product will last a long time. If you don't have the technical capacity to assess the source code, it's prudent for you to hire a professional that does.
The source code is usually the owner's property and doesn't belong to the developers who created it. You must ensure the source code is included in the sale and transferred to you after the sale.
Check Acquisition Channels
There are several ways a SaaS company acquires customers, and they include paid advertising, organic search, social, referral, and direct. SEO and paid advertising are the primary sources of traffic, so scrutinize what the current owner is doing and how you can improve it to increase your business opportunities. Check if a domain is included in the sale to use the website to get traffic.
Understand the Competition
Buying a company means buying a share of the market, so get to know the companies you'll be sharing the market with. Check their marketing, pricing, and what they offer their target market. Scrutinize how they differ from what your software offers and look for an angle that offers you marketability.
Ready To Buy a SaaS Company?
There are so many reasons to buy a SaaS company, and this is the process you should follow to get it done. Do your due diligence to verify everything before you make the final decision to buy a company. You should also know when to walk away from a deal that doesn't seem appealing at all.
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BizNexus -Learn More From Our YouTube Playlist:
BUSINESS ACQUISITION
Have you checked out our podcast?
THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
Benefits of Starting a Business vs. Buying One
There are two tracks for owning a business -- either you build one or buy one. Both are attractive options, depending on what you want and what industry you're in. Keep reading so that you can learn the benefits of starting a business, compared to buying one.
Buying vs. Starting a Business
We put together 7 benefits to share with you on starting vs. buying a business
7 Benefits to Starting vs. Buying a Business:
Market Research Benefit when Buying a Business
Starting a Business Gives you Meaning and Skin in the Game
Faster Track when Buying a Business
Starting a business can be built on your personal preference and liking
Take Advantage of an Established Brand when Buying a Business
Acquiring an Established Business Gives you Access to More Capital
Building a Business Allows you to start your own Team
When you are interested in growing your wealth, it means building streams of income. Nothing builds income like becoming a business owner.
There are two tracks for owning a business -- either you build one or buy one. Both are attractive options, depending on what you want and what industry you're in.
Keep reading so that you can learn the benefits of starting a business, compared to buying one.
1. Buying an Existing Business Gives You the Benefit of Market Research
When you're weighing whether to run a new or existing business, consider your risk tolerance. If you want more of a sure bet, buying a business gives you the benefit of market research.
The company that you buy out can hand over documented research and analytics that you can immediately assess and build on. You'll also have built-in successes and failures to learn from, which will let you retool and leave your own mark on the business.
2. Starting a Business Gives You Meaning and Skin in the Game
Starting a business is often a heart-centered decision. For many people, starting their business is tied to finding their "why", which adds to the investment and meaning of the journey.
When you build your company from scratch, it has a large measure of meaning, and you'll feel compelled to fight your way through adversity. People often start businesses when they start thinking about legacy and long-term wealth.
3. Buying a Business Lets You Get Started Quicker
Consider your timetable for getting started. If you are interested in getting in the driver's seat sooner, purchasing an existing business is your best option.
When you're able to start your business quickly, you'll be more likely to make your company productive and profitable. It gives you a swifter return on your investment and lets you begin hitting benchmarks.
4. When You Start Your Own Business, You Build it Perfectly to Your Liking
Starting vs buying is an easy decision if you're big on customization. Building a business to your liking lets you control things down to the last detail.
When you decide to start your own company, you get to see an idea in your mind go from journal entries and vision boards to concrete plans, to a living, breathing reality and source of income. This is a reward in itself, and it gives you the courage and confidence to make other moves in your business life.
5. You Can Take Over an Established Brand
There's no substitute for piggybacking off of the work that someone else already put in. When a brand is trusted and established, you'll be able to quickly build a rapport with their customers.
This is why purchasing a franchise is such a common way that people begin building their wealth.
Being able to use the logo and trademarks of a company that people already trust and identify with gets you, customers, day one. This way, you'll be able to focus more on the work at hand and less on marketing and trying to draw new people in.
6. Purchasing an Existing Business Gives you Access to More Capital
The bank is always more willing to bet on the established brand. If you know that you're going to have to seek lending, you'll have a better chance of getting the funding that you need when you're purchasing an existing business.
When taking over someone else's company, you'll be able to present the bank with financial records for the past several months or years. An existing company also has assets that can be used as collateral.
The risk is lower for the bank, which means that the terms that you receive will also be more reasonable. By taking on a loan that you can easily repay, it frees you up financially to accomplish your goals for both the short-term and the long-term.
Make sure that you explore plenty of options when you're trying to find new lending opportunities.
7. Building Your Own Business Lets You Start Your Own Team
Consider what you are hoping to get out of business ownership. If you're a people-oriented entrepreneur, you will definitely want to put some thought into the team that goes on this journey with you.
When you're building your own company, you'll have more control over who is working for and with you. Taking over an established company is more difficult in this regard since teams are already in place from top to bottom.
By starting your own company, you'll be able to instill a company culture that carries on for years to come. You will know that you left your imprint on the business and that you had a strong influence on its direction and success.
Consider the Benefits of Starting a Business vs. Buying One
When you're thinking about the benefits of starting a business, the tips above will be helpful. Becoming a business owner is a dream that many people have. It's something that you can achieve as long as you have the right information and the willingness to follow through.
These points give you a glimpse of what's possible so that you can then decide which track you want to take. Whether you decide to purchase a business or start your own, make sure that you put together the best team of professionals, and seek help from those who have been in your shoes.
For more advice on buying a business and making entrepreneurial decisions, check out more of our blog posts.
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BizNexus -Learn More From Our YouTube Playlist:
BUSINESS ACQUISITION
Have you checked out our podcast?
THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
Becoming a Business Owner: 7 Key Benefits of Buying a Business
Learn more about the benefits to buying a business.
When it comes to buying a business, 90% of potential buyers fall through. It's an extraordinarily high number, and there are various possible reasons.
People become obsessed with the idea that the business might fail, or find too many risks. The truth is though, no business is perfect.
However, becoming a business owner of an already established company can be far better than starting your own in many ways. Don't back out because of some trivial reasons — it's time to go for it.
If you're wondering about all of the advantages of buying a business, here they are!
1. It's Low-Risk Compared to Starting a Business
When buying an existing business, there's generally less risk.
If you're starting your own business rather than investing your time and money in an existing business, the risk factors can be pretty huge. Many businesses fail fast and unfortunately, when starting a business, it's very hard to predict if it will be successful or not. Very promising business can flop.
An established business has already been through the risky first couple of years and made it out the other side. Presumably, they've already met a lot of their business goals and are generating a healthy profit.
By buying an existing business, you're skipping the initial risk period.
2. There Are Established Relationships Already
Regardless of what the business offers, whether it's a service or a product, there are usually established relationships with clients or customers.
They already know the business works for them, and they're ready to use them.
Although you'll want to continue to grow the business by going out there and finding more clients and customers to welcome into the fold, starting off with that base can be extremely helpful. There's no need to struggle for a few weeks or months as you try to find people to help — your starting base is already there.
3. You Might Have a Solid Staff Team
There's probably a staff team already working for the business. Takeovers can be tricky in that not everyone is always happy about them, but if you put your best foot forward, it's likely to go smoothly.
After all, this staff team is likely already invested in the business.
The staff team will have been there for a while, which means they already know what they're doing. This can cut training and hiring costs, since if you need to hire anyone new, it'll be far fewer people than if you had started a business on your own.
New business owners developing a good relationship with an existing staff team is vital and will pay off in the long run.
4. Learning Something New
When buying a business, you might know the business and financial world well, but not the industry you're coming into.
For example, you might be entering the pet industry or the gaming world, but have no idea about either of those things.
That doesn't mean you're going to be a bad owner! It just means you're going to learn something new and gain experience in a new industry, which is invaluable.
Let the staff teach you about everything you need to know while you impart business wisdom.
5. You Still Have Creative Freedom
One thing that scares new business owners is that they'll have no creative freedom. By coming into an established business, they assume it's set up a specific way, and they won't be able to change anything. Understandably, that can be frightening to those who like to make their own mark on things.
This, however, isn't true!
Staff and clients alike will welcome improvements. This isn't to say you should come in and change everything in one shot, but you'll be welcome to put your own stamp on the business if it improves it.
You likely already have ideas if you went ahead with buying the business, so don't be shy to do it — although it's always wise to seek feedback first.
6. It's Less Work
In general, it's less work at the start. If you own multiple businesses or have another job, this simple fact might be what persuades you to buy an existing business.
You can skip out on:
Hiring and training staff
Working to establish the business
Finding those initial clients
Designing the website from scratch
Experimenting with what works for the business
You can make changes to all of these things, of course, but the solid foundation being there will make a huge difference.
7. It Likely Has an Established Reputation
Not only will it have a staff team and established clients, but it might also already have a reputation in that industry!
If the website is drawing in a good number of hits a month, or the client base is big, this is likely the case. No need to build the business up to be highly respected when the respect is already there — all you need to do is maintain it by carrying on with what they've been doing and putting your own mark on things.
Becoming a Business Owner This Way Might Be the Smart Choice
Becoming a business owner can be daunting in any scenario. However, buying a business from scratch involves a risk period and a lot of time and effort investment that buying an existing business doesn't.
If you've been afraid to buy a business, it might be time to take the leap. Don't look for the perfect business — look for the business that's well on its way to being so, so you can push it for the final few steps!
Looking to buy a business? We can help — let us match you with one today.
8 Things You Need to Know Before Buying a Franchise
Learn key items you need to know before buying a franchise.
Buying a Franchise?
Here are 8 things you need to know before you dive in.
What are the 8 Things You Need to Know Before Diving in Buying a Franchise?
Experience
Industry
Fees
Capital
Chance of Success
FDD - Franchise Disclosure Document
Territory
Training
Are you thinking of buying a franchise? Well, we don’t blame you! This is one of the most successful business models of the last century, with 785,000 franchise establishments operating around the US today.
One reason for this massive popularity is the array of incentives on offer for budding entrepreneurs. From leveraging the products and influence of established brands to accessing marketing and operational support, you can sidestep many of the usual problems start-ups face in the search for success.
Owning a franchise isn’t all hunky-dory though! What ordinary start-ups lack in experience, authority, and market share, they make up for in flexibility and control over their business. By contrast, franchisees operate under tight regulations dictated by the brand and pay for the privilege of using their brand name.
For these reasons, it’s important to learn more about the pros and cons of owning a franchise before signing any dotted lines. Do you want some help with that endeavor? Keep reading to discover 8 key things to think about before buying a franchise.
1. The Experience
Our first suggestion is to find out as much as you possibly can about the reality of owning a franchise. You could even go and work for one first! You’d learn what it’s like, how they operate, what challenges they face, and how much support they receive.
At the very least, you should research and talk with current franchise owners about their experience. Having this solid grounding in franchise ownership would help in two ways: first, you’d recognize whether or not it’s something you’d enjoy doing; second, you’d glean vital insights into the processes, pitfalls, and perks involved.</p>
2. The Industry
Think about your personal interests, skillsets, and experience levels too. A particular franchise might seem like an amazing business opportunity. But it could turn into a nightmare venture if you dislike the industry and/or have no experience in it.
Good things happen when passion and skillsets align. You’re onto a winner if you can find a franchise in a field you both like and have prior experience in. Take an honest look at your strengths and weakness to decide if the franchise in question ticks those boxes.
3. The Fees
A full understanding of your financial obligations as a franchisee is crucial as well. After all, the initial franchise fee will only be the beginning. You can expect to pay ongoing royalty fees too; some franchisees even have to pay out for marketing, training, and opening day giveaways.
Don’t be caught unawares! Investigate every single cost involved beforehand so you can decide whether or not it’d be a viable business opportunity.
4. The Capital Requirements
Those fees aren’t the only overheads you’ll have to cover as a franchisee though. Like any business, you’ll be buying inventory and paying utility bills, wages, start-up costs, and so on. That’s why it’s important to a) understand how much capital you’ll need in advance and b) have enough of it in the bank to mitigate the financial risks!
Likewise, regardless of the brand in question, it could take some time for your franchise business to be accepted in the community. Make sure you have a sizable financial buffer to weather this initial slow period until the franchise is fully up and running.
5. The Likelihood of Success
Starting a business on a whim rarely ends well. You need to assess the market, identify the demand (and competition), consider potential future obstacles, and, ultimately, determine the likelihood of running a profitable business. Alas, that last part’s often easier said than done for franchises.
Why? Because what works for one franchisee might not work for another!
Success depends on myriad factors, not least of which is an establishment’s location (and both the culture and demand therein). A franchisee’s personal connections make a difference too. Nevertheless, try to work out how many people have had success with a particular franchise, how they accomplished it, and how many failed to try.
6. The Franchise Disclosure Document (FDD)
The FDD is another pivotal piece of the puzzle. This document will tell you everything you need to know about the franchisor and its system- not to mention your potential requirements as the franchisee. Details about territory (more on this coming up), pricing guidelines, products, and various money matters are all included inside.
You must read the FDD cover to cover, understand the terms, and feel happy with the restrictions you’d have to operate under. Avoid signing up for anything that you either don’t understand or have significant reservations about.
7. The Territory
Start researching franchise ownership and it won’t be long before you come across talk of territory. Outlined in the FDD, your ‘territory’ is the area in which you can legally operate and serve customers. It’s imperative that you
define your territory clearly
choose properly based on size, population density, and setting and
avoid or plan for overlap with a competitor’s territory.
Likewise, how many territories, if any, does the franchisor expect to incorporate in the coming weeks, months, and years? How many are in place already? And what are their rules around competing when multiple franchisees operate in the same area?</p>
8. The Training
The best franchisors understand that their success is tied up with the success of their franchisees. As a result, they’ll invest in their learning and be proactive in their development from day one. It goes without saying that these are the organizations you want to buy into.
That’s why you should try to uncover the franchisor’s reputation (and the support they have on offer) before signing any franchise agreement. Inquire about any training opportunities that provide, hands-on assistance they deliver, and so on.
Remember These Factors When Buying a Franchise
Franchising is a hugely popular business model in the US and around the world. And for good reason! It offers a wide range of advantages to everybody involved, allowing entrepreneurs to ‘piggyback’ on the success of established brands.
But that doesn’t mean you should sign any old franchise agreement without thinking it through first! As we’ve seen, this is a big commitment that demands due diligence and insight to ensure you attain the success you deserve. Would you like professional support acquiring a franchise without the fuss of going it alone?
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Why Start a Business When You Can Buy a Business?
So you want to run your own business, but you're not sure where to start. Why not buy a business instead? It just may be the right move for you!
So you want to run your own business
Why not buy a business instead?
6 Reasons on Why Buy a Business
You have a foundation.
You have a brand.
You have a market.
You have a problem-solving process in place.
You don’t need startup funding.
You already have a team.
Buying a business can be better than starting a business.
If you buy a business, you sometimes know that there is a proven business model. You know that business has had success, that there's profit with the business.
If you're unsure of buying a business because you want your own foundation, then you should consider the benefits of buying a business. You should consider how it gives you a headstart on everything.
Here's a guide on why you should buy a business instead of starting your own business.
There's Already a Foundation
One of the benefits of buying a business is that there's already a foundation. There's often less work when it comes to buying a business.
You don't have to worry about creating a marketing strategy, have a business plan, or finding a building to house your business. You may already have the employees you need to continue with the business.
The great thing about buying a business is that you aren't starting on step 1, you are starting on step 5.
Here's a more detailed look at why buying a business can be more beneficial, giving you a head start on revenue.
You Already Have a Brand
If you start a business, it can take a while to build a brand. People don't know about your business or how you can help them. Building a brand takes time because it requires marketing and building a customer base.
But when you buy a brand that's a part of a business, you already have an existing market that knows how you can help them.
You already have a story that resonates with people. You know what benefits them.
Buying a brand also means that you already have predesigned logos and other signage that represents your brand.
You Already Have a Market
Buying a business also means that you already have an existing market. You don't have to figure out who your ideal buyer is. You already know everything about them and how you can help them.
When you buy a business, you don't have to worry about attracting new customers because you already have loyal customers who know everything about your business.
You know the demographics, their age, what they like to do, and how to solve their problems. These are some of the challenges you would have to consider solving if you were starting a business.
When you buy a business, you only need to make minor adjustments to your target market. If the business you are buying is struggling, you may have to do more research on your target market, but the most essential information should be there.
You Know How to Solve the Problem
If you're buying a business that is struggling to attract new customers or has other problems, you may find that it's a problem you can solve.
You may see an opportunity in a business that is struggling. This can sometimes make it more of a profitable opportunity than starting a business.
Another problem you are solving is having fewer competitors in your industry. If you were to start a business, you would have so many competitors. But buying a business means you have to compete against one less.
You Don't Need Financials to Get Your Business Started
Whenever you start a business, you need a market analysis and a detailed financial plan. It should outline your 6-month and 12-month revenue goals.
If you buy a business, you don't have to worry about the financials as much. While you still need a financial goal, you don't need to start from the very bottom. The business you are buying should already have an idea of how much they are making each quarter.
The business you are buying should tell you profit margins, what's selling, what's struggling, as well as other financial plans. It can give you an idea of if you want to buy that business or if you want to pass on it.
The final financial benefit you should be aware of when you buy a business is that you have immediate cash flow. You don't have to wait for customers to find your business and start buying.
Everything should already be in place for you to make money. When you take over a business, the goal is to make changes so you can increase that cash flow.
You Already Have Employees
The final benefit of buying a business is that you already have employees. While you can choose to bring your own team in, it's not something you have to rush.
You can choose to evaluate the current employees and train them on new policies when you take over a business. It's not something that you have to rush when you buy a business.
It can also make running a business easier instead of starting a business because you already have a team in place that knows their role. You don't have to hire from scratch.
Now It's Time to Buy a Business
Deciding to buy a business can be still challenging, but it's sometimes far less challenging than starting from scratch with starting your own business. This is why it's important to consider the benefits of buying a business.
When you understand how most of everything is in place when you buy a business, you realize how much easier it is. However, it's important to remember that you still need to do your research on what business to buy and see how much revenue they are producing.
If you're considering buying a business, you can get matched with the perfect business here on our website. You can also start identifying your existing market.
Most related post handpicked for you - read on…
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BUSINESS ACQUISITION
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THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.
How to Buy a Business | Four Vital Questions to Ask
It can take a lot of time and effort to develop a business from scratch. This is why people savvy enough to tap into available public and private resources decide to buy an existing business. However, going forward with the purchase is not an easy decision to make. Here are four important questions to ask during the process of buying a business.
How To ACQUIRE A Business
Four Important Questions to Ask
It can take a lot of time and effort to develop a business from scratch. This is why people savvy enough to tap into available public and private resources decide to buy an existing business. However, going forward with the purchase is not an easy decision to make. Here are four important questions to ask during the process of buying a business.
Where to Find A Business to Buy?
The initial step is to find a place where you can buy a business. Many people go to brokers seeking help to identify the right business for them. Others check industry publications, newspaper advertisements, or various online business for sale platforms.
Online marketplaces can be a great way to find a business to buy, especially if you’re looking to focus on digital business and e-commerce startups that are increasingly putting themselves up for sale.
Is That Business the Right Fit for Me?
Here are three key questions every entrepreneur like you should ask themselves when vetting an acquisition:
What are my skills and interests? – You would be more motivated to succeed with a business in a niche that you are passionate about. Needless to say, you want to make sure you know the industry enough to take over the business effortlessly.
What is my budget? – The price tag of the business needs to fit your pro forma budget. Furthermore, the business should generate monthly sales to cover the cost of operations with the potential of making a profit. If you need additional capital, you can consider getting a business loan from a financial institution like your local bank.
Do I have time and resources? – There is no point in buying a business if you are going to neglect it. You need to have enough time, effort, and energy to ensure that your business has the right allocated resources to become a profitable investment.
What Will You Get for the Price OF THE BUSINESS?
The chances are you will have some wiggle room when negotiating the purchasing price, but before you do that, ask the business seller exactly what assets will transfer for that price? Yes, you will become the owner of the business & manager of the team in place, but will you also get its inventory, social media accounts, a functioning website, and other relevant items?
Do You Have Accurate Historical Financial Reports?
The general rule of thumb is to stick to buying businesses that generate profits for at least a couple of years. The current business owner needs to be ready to provide financial statements and reports for at least that period. This includes a detailed overview of revenues, expenses, and debts. Also, it would be great if they include a projected financial statement.
Learn More About Business Management
While you should have general knowledge about managing a business, we are talking about the day-to-day operations of the business you are acquiring. For example, you may need permits and licenses to continue operating the business. There may also be operating procedures that you can adopt as that can make you a better manager.
Here are some more general questions related to the business operations:
If the business that you are buying is digital, the product or service will be sold through a subscription model, or use one-time payments?
Are there any employees whose salary you are expected to pay?
Are there any contracts with vendors or other suppliers or providers? How long do they last, and is there an extension option?
Are you an entrepreneur?
An Austrian economist defined entrepreneurship as the “competitive behavior that drives the market process”.Thus it creates value for both market and society. Entrepreneurship is the process of creating something new of value by devoting the necessary time and effort, assuming the accompanying financial, psychological, and social risks, and receiving the resulting rewards of monetary and personal satisfaction and independence.
What problems can small businesses face in terms of entrepreneurship?
America's small business owners' optimism took a modest downturn in June, according to the NFIB Small Business Optimism Index, slipping 1.7 points to 103.3. While optimism remains at historically high levels, the June figure reverses the gain posted in May, with six components falling, three improving, and one unchanged.
Fifty-four percent reported capital outlays, down 10 points.
The net percent of owners reporting inventory increases fell two points to a net-zero percent, indicating no further building in inventory stocks in June.
The net percent of owners expecting higher real sales volumes fell six points to a net 17 percent of owners.
Twenty-seven percent of those reporting weaker profits blamed sales (down three points), 12 percent blamed labor costs (up five points), 11 percent cited materials costs, and nine percent cited lower selling prices (down two points).
Final Take On Buying A Business
As you can see, purchasing a business is both challenging and fun! You want to ensure that you pick the right business, which is why you should carefully evaluate all the details related to the purchase. Take as much time as necessary to ensure you are making the right decision as this can be the difference between success and failure down the road.
BizNexus -Learn More From Our YouTube Playlist:
BUSINESS ACQUISITION
Have you checked out our podcast?
THE BIZNEXUS ROUNDUP
Quick & dirty interviews, war stories & tips from the trenches of business acquisition, growth & sale. We aim for value, efficiency & fun, so you'll walk away with something useful to take with you along the journey of buying, growing & selling a business.