By Bob Barragan
Item Contributor
HUNTSVILLE —
To many people, buying an existing business seems like the easiest way of becoming an entrepreneur. Usually everything is already in place – suppliers, inventory, customers, a line of credit with the bank, even employees who know the ropes. All that needs to be done is increase sales and set higher goals for success, right? Not always.
The Small Business Administration (SBA) estimates indicate that several hundred thousand businesses are sold each year, with the majority of them being small companies. Unfortunately, no matter how much research is done prior to making the purchase, over a period of time, things may not always be what they seem to be prior to the sale.
The SBA stated that one of the advantages of buying an existing business is the drastic reduction in startup costs of time, money, and energy. In addition, cash flow may start immediately thanks to existing inventory and receivables. Other benefits include preexisting customer goodwill and easier financing opportunities, if the business has a positive track record.
However, the disadvantages to buying a small business outright, is the initial purchasing cost. As the business concept, customer base, brands, and other fundamental work have already been done, the financial costs of acquiring an existing business is usually greater than starting one from nothing. Other possible disadvantages include hidden problems associated with the business and receivables that are valued at the time of purchase, but later turn out to be non-collectable (www.sba.gov). By reviewing the books, a new owner can discover all about the debts or overdue accounts but there are many problems which will not show up on the companyís spreadsheets. Good research is the key to avoiding these problems.
Often, employees are fearful of the changes the new owner might make and how they will fit into the scheme of things. Patience, creativity and good communication with employees will help alleviate their fears. Many times, a new boss/owner has unrealistic expectations and assumes the past owners ran the business poorly which will make employees feel alienated and resentful. Employees need to feel as if they are part of the team; they can be a tremendous asset to a new owner and can also be the reason for success or ultimate failure.
To find out more about purchasing an existing business, please call the Small Business Development Center at (936) 294-3737 to set an appointment for free, confidential counseling.
