Question 1: When an investor considers whether or not to buy a business, one of his or her first questions is “should I start my own business or buy an existing one?” The answer really depends on the goals of the potential buyer.
Time is money. Buying a business will take more money. If you estimate the cost to buy equipment, rent space, pay staff and yourself, and cover miscellaneous other start-up business expenses, you can see this point. Starting a business will take more time, especially up front, as you research ideas and try various ways to reach operational success. Weigh those costs with the cost of buying a business, keeping in mind the level of uncertainty and length of time when your start-up business is not making any profits. Which is more important to you?
Government surveys indicate that over 80 percent of new businesses fail for various reasons within three years. When you buy a business, you immediately have income and proven cash flow, as long as the business is not in distress when you buy it. Most likely, you will also buy a trained staff and have established relationships with customers, suppliers and other partners. Going in, you should already know that the business is, or can be, a success. Buying a business removes a lot of the risk that comes along with starting your own business.
Question 2: Once the investor decides to buy a business, he or she will have additional questions, including “how long does it take?”
The time required for someone to sell a business can range from six to eighteen months. From the buyer’s perspective, it will take longer to buy a business than buying a house or piece of commercial real estate. There are other considerations are well. For example, the sale of a business is confidential, so there is limited marketing by nature, so it could take some time to find the right business to purchase. Some sellers might sell their companies within a month, but it could take much longer if they are looking for the right buyer. In these situations, it is best to work with an experienced business broker with lots of connections.
Question 3: Another common question investors ask when buying a business is “what are the tax benefits?”
There are ways to garner tax benefits when buying a business. Consult a tax expert to verify what is possible. In many cases, depreciation of fair market value on furniture, fixtures, and equipment happens at a faster rate than real estate. Non-compete clauses and the value of training are tax deductible. Finally, most businesses have deductible expenses that add to the owner’s cash flow. Again, always seek the opinion of a qualified tax professional on these issues.
Buying a business is not a simple task. There are lots of variables to consider. It is best to work with an experienced business broker to walk you through the process from deciding to buy a business through the actual purchase.