Which is Better, Investing or Owning a Business?
Whether you are starting your own business from scratch, going into a business opportunity, or buying a business, you need to have certain characteristics, traits, skills, and goals in order to succeed. So how do you know if you are ready to own a business? Basically, you need to ask yourself some hard questions and give yourself honest answers. If you don’t have the time and commitment to start a business, you need to look elsewhere for your income. You may be better served accepting a job with a company. There are those that need structure and a job is the place for them. But, if you are inclined to owning your own business, then lets discuss some necessary items. First, you need to have a plan. The plan can come from your own imagination, the franchisor, or the company offering the business opportunity. It doesn’t have to be something set in stone, and it doesn’t have to be fancy. It just needs to be a basic outline of what your business will be, what you will sell, how you will sell it, and what your operating costs will be. It is recommended that you include at least three months of operating expenses into your start up costs budget, which also needs to be determined in your plan. The next item is paramount to your success. It is the infamous 4 letter word and that is work.
Are you learning about Buying a Business? For most people, buying an existing business is a better option than starting one from scratch.Buying A Business is generally better than Starting a BusinessBuying an already operating business has an existing cash flow, established customer base, vendor relationships, trained employees, and an established business location.All of these critical factors are non existent with starting a business from scratch. It will take time and a lot of hard work just to get a new business of the ground. In addition you will be literally burning through cash the first year and it's safe to say you should have at least 6 months to a year of personal savings in the bank that can cover your family's expenses while your new business is developing.The choice is easy. Buy an existing business with a proven cash flow so you have immediate income.Financing a BusinessFinancing an existing business can be time consuming but it depends on the route you go. Most small business owners will carry owner financing on a percentage of the deal. So if the total deal price is $100,000, you may only need $20,000 - $40,000 as a down payment and the sellers may carry the balance. Most sellers will carry the loan for 5 years at 6% -7% interest. They may also allow you to finance the loan over 10 years but require a balloon payment in 5. You should always try and get the seller to carry a portion of the financing fist. It's the easiest method in getting a deal done. If the seller will not carry a large enough portion with your down payment then you can look at alternative financing.So how much do I need as a down payment? You should have 5% - 20% of the total purchase price as your down payment. For seller financed notes they may require up to 50% down but this will vary widely with each deal and sellers personal requirements.No Money Down loansIt is a common misconception with Small Business Loans (SBA) on how easy they are to get. First and foremost, there is no such thing as No Money Down Loans when it comes to buying a business. Even before the credit crisis they did not exist. You will need at minimum 10% of the total purchase price as a down payment to get bank financing. Most small business lenders will not loan on purchases under $100,000 - $150,000 and they have additional requirements.Personal Requirements in Financing:10% Liquid Assets as down payment (They will prefer 20%) At least 6 months experience working in a similar business or managing another business A good credit score 620 and above minimum and no recent bankruptcyBusiness Requirements in Financing:The business will need to provide at least 2 of the most recent tax returns and the current years updated Profit and Loss statement.The business will need to show it has sufficient provable cash flow after the loan debt service and the buyers personal financial requirements.If you do not meet all 3 of the personal requirements and the business does not meet it's requirements then you most likely will not receive an SBA loan and will probably be wasting your time. You should focus more of your time on either negotiating with the seller to carry the financing or find a different business.Other Financing Sources:There are a few other ways you can finance the business but it will require refinancing personal assets like real estate.What Type of Business Should I Buy?Look for a business that has some connection to types of work you've done in the past, classes you've taken, or perhaps skills you've developed through a hobby. It's almost always a mistake to buy a business you know little about, no matter how good it looks. Also, try to choose a business that you're excited by. It's easier to succeed in business when you enjoy the work you're doing. Where to Look when finding an Existing Business For SaleThe first place you should look is contact a local Business Broker. Business Brokers are professional Business Advisors, intermediary's that assist buyers and sellers in the sale of a Business and generally are paid fees by the seller. A broker will help you in everything from researching businesses for sale, negotiating the best price for the business, financing the business, incorporating your business, and much more.Although brokers are paid commission by the seller, their interest is in selling the business. Therefore a good broker will work with both the Buyer and Seller in negotiating the most favorable terms for both parties.Brokers are one of the best resources to use when Buying an Existing Business.How to find A Business Broker or Business for Sale:You can find a Business Broker by looking in your local yellow pages or online by using business for sale website like The Business Broker Journal. This site is mainly a marketplace for business brokers as a place to advertise their businesses for sale.
Buying a Business - Steps
It is everyone's dream: roll out of bed at the crack of noon, stumble to the front door in your PJ's, pick up the newspaper and check the mailbox. And in the mail, there is a check waiting for you - maybe it's $1,000, $10,000 or even $100,000!Such things only happen in fairy tales, right? Wrong! But there are some things that have to happen first:1. You must have the discipline to actually WORK in your business. Most people get up and go to a job. It becomes a habit, a safe routine. When you have your own business, there is no one telling you what to do or when to work. It's easy to get way laid. Many business owners create systems and a schedule to replace the routine for a 9-5 job.2. You must be willing to deal with the insecurity of no steady paycheck. It's usually a good idea to have at least 3 - 6 months reserve to cover living expenses while you're getting your business off the ground. Or phase out your 9-5 job gradually. 3. There are lots of details that you must learn about running a business that have nothing to do with making money: filing quarterly estimated IRS returns, business licenses, filing payroll taxes, withholding, unemployment, workmen's comp... The list goes on.4. By all means, read the book E-Myth Revisited by Michael Gerber. Owning a business is all about systems. Just because you love to bake, it doesn't mean you should own a bakery.5. Another 'MUST READ' recommendation: You Need To Be A Little Crazy - The Truth About Starting and Growing Your Business by Barry Moltz. Barry gives the inside story of the ups and downs of being a business owner. The toll of being a business owner effects not only you but your family as well. Barry describes the stress of being self-employed can have on your health and on your relationships.6. Be sure you not only know what you're getting yourself into - but make sure your family and spouse understand and are willing to make the sacrifice as well! They need to be prepared for you to work harder than you've ever worked before--AND without a steady paycheck. Without the support of those who love you, you will never succeed.7. Having a business that doesn't require a "bricks and mortar" store or office is a huge advantage. Overhead is cut to a minimum. Maybe it's an Internet business where you sell "moon cookies" on line and a fulfillment center warehouses the product.8. Not having inventory is a huge advantage! Not having precious capital tied up in inventory gives you a huge safety net. Starting with a service vs. a product can be a much easier start-up financially - IF you have experience and a "following" of clientele in the service you're providing. 9. Multi-Level Marketing businesses are a great way for a beginning entrepreneur to get started with a very low entrance barrier. "Rich Dad" Robert Kiyosaki has outlined the benefits of this type of business in his book The Business School For People Who Like Helping People.10. Brad Sugars, who markets a program called "Billionaire in Training" recommends buying an existing business vs. starting a new one. Acquiring new customers is most expensive when you have none. Buying an existing business gives you a built-in client base.
Buy a Business! - Learn Why Buying a Business is Better Than Starting a Business
Owning your own business is very rewarding but there are challenges. Among those challenges is being able to get access to the capital you need to sustain and grow your business. Owning your own business is the "American dream." The reality is, however, that buying a business is a serious financial and personal commitment that requires an understanding of what makes a business successful. All too often, new owners jump blindly into a business venture, only to be overwhelmed by the tremendous workload of starting a business from the ground up. Owning your own business is not a 9 to 5 job. Self-employed contract workers (writers, consultants) may work long hours under tight deadlines, while store owners spend anywhere from 80 to 120 hours or more a week maintaining their business. However, many people fall victim to a disastrous assumption. Owning your own business is hard work and there are many more failures than winners. If you do decide to go for it, then you need to go all the way and work your ass off.Starting a small business can test the limits of your endurance. The time, energy and financial commitment can rattle even the most dedicated business person. Starting a small business, after all, is very intimidating. If you want to start your own business, you have to be willing to put it all on the line. Starting a business, whether in your home or outside, is not as simple as some think. However, the benefits rival any small problems that might come along. Believe it or not, it's entirely possible to maintain a work at home career. There are a few ways of achieving the satisfaction of being able to work at home and making a career of it, but the true question is what do you really want to do?
Buying a Business - The Best Or a Fixer Upper?