Thinking about becoming a business owner
If you are thinking about becoming a business owner, your timing is perfect as approximately 50% of all U.S. businesses will be changing hands in the next decade. It is crucial that you prepare yourself properly, educate yourself, and take the necessary steps to be certain that you make the right decisions along the way.
In consideration of such a major decision and investment here are some questions that buyers typically ask.
Q. Why do most people choose to go into business for themselves?
A. The idea of becoming your own boss is always appealing as millions of people have tried it and liked it. However, before making a decision to purchase or start your own business, you should understand your reasoning to make sure that your objectives can be met by a particular business. Here is a listing of the typical responses to this question, in order of importance:
- 1To control my own future
- To work for myself
- To take advantage of my skills and abilities
- To make money
Q. Should I start my own business or buy an existing one?
A. An existing business has a historical track record which can be used to evaluate the business. It also typically has a record of the demand for its products or services, and should have detailed financial records. Typically a seller will agree to stay with the business and help to train a new owner for a defined period of time, and to provide seller financing. These are all important factors because many small businesses tend to fail during the early stage of their development. On the other hand, there can also be disadvantages to buying an existing business. A buyer will be assuming an established corporate culture and infrastructure which may make implementing changes difficult. Also buyers will generally have to pay a premium for an existing business.
Q. Should I hire an attorney?
A. It is generally a good idea to retain an attorney to review the necessary legal documents. If you do seek to hire an attorney, it is important to hire one that is familiar with business acquisitions
Q. How much cash do I need in order to purchase a business?
A. In most cases you can expect that a portion of the total price paid for the business will be paid in some sort of a deferred payment – whether in the form of a seller’s note or payments contingent upon the performance of the business. Third party lenders are also available to make acquisition loans. Therefore, a down payment of 1/3 to 1/2 of the purchase price is typical, although a number of variables may impact this number.
Conclusion: No matter which type of business you eventually decide to pursue, it is important that you determine your goals and priorities up front, and to seek the advice of advisors from the beginning. These few pieces of advice will keep the process and all involved moving in the same direction, which ends at the closing table where you become a business owner.