Buying a business is a unique experience. Though a lot of people assume it’s like investing in a franchise, I don’t think that’s a fair comparison.
I bought the company I now run, and it was a very eye-opening process. And while I know I made the right decision by buying, stepping into an existing company is vastly different from starting one.
Since I’m also in the position of having bought a company that works mainly with entrepreneurs starting their own businesses, I often get asked about both paths. In my opinion, one isn’t better than the other, but buying a business does come with a unique set of challenges.
Buying a Business Costs More Up Front …
… a lot more. Recent statistics from BizBuySell placed the median sales prices for businesses between $150,000 and $200,000 at the end of 2014; the first quarter of 2015 saw those prices spike to above $200,000. Compare that with the $65,000 the Wall Street Journal pegged startup costs at a few years ago, and you quickly see a disparity.
Even if you assume costs have gone up, there’s still a considerable gap between what it costs to start your own business, and what it takes to buy one. That said, when you buy an existing business, you get a lot more than a building and a name. Branding, good will, client lists, trade secrets, trained staff, and equipment all come pre-packaged when buying a business. It should, theoretically, then take less time to start turning a profit, though that isn’t always how it works. That’s why it is vital to do your research.
Buying a Business Takes a Long Time
To be fair, starting your own company does take time. You have to apply for licensing, permits, and fill out all sorts of legal paperwork. But once that’s done, you’re good to go.
Buying a business, on the other hand, is a long, drawn out process because you have to do a lot more before you sign that check. Negotiations are a touchy process, and you can’t assume the sellers are completely upfront about why they are selling. Business could be bad, customer relations could have soured, the brand’s reputation might have tumbled – you will get to review the company finances, and you’ll probably receive an executive summary about the company, but neither of those tell the whole story.
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Buyers should ask to shadow the current owners for a bit, and get a feel for how the company is run, and to see what you’ll need to change. I, for example, quickly found we were overstaffed. Knowing that changed how much I had to budget for wages and resources, and let me know office morale would take a hit, as I had to downsize. Take your time, and don’t feel pressured to make any decisions you haven’t completely thought through.
Buyers Tend to Feel Like Impostors
Over 70 percent of us report wrestling with “impostor syndrome” at some point in our lives; that feeling that we don’t deserve the success we’ve had, and at any moment being outed as some sort of fraud. Successful people – and especially entrepreneurial women – tend to be afflicted with those thoughts even more often. I know I’ve had my moments where I wasn’t sure if my success was just dumb luck.
Buying a business can inflame these feelings as, technically, you didn’t “build it,” and that scares a lot of potential buyers. Many people feel it’s better trying to do it on their own, just in the same industry. So, if you do plan to buy a business, you have to ask yourself if you are comfortable stepping into someone else’s creation. Of course this is not going to be a turnkey operation – it will be yours, and you will run it your way. Remembering that, and recognizing the changes you personally make to get the company back on track will help you fight those negative thoughts.
I’m happy I decided to buy my company, but that path is not for everyone. It takes a considerable amount of time, money, and dedication to truly make any bought business your own. But knowing what to expect will make any buyer’s entrepreneurial journey easier.
Before buying a business, make a plan and know what you are going to change on day one. Then you can begin reshaping the company into the business you know it could be.
About Deborah Sweeney
Deborah Sweeney is the CEO of MyCorporation.com. MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best. Follow her on Google+ and on Twitter @deborahsweeney and @mycorporation.