Buying a new business? what to look for

[bumblegoodie]

Dear All,

I understand many of the experienced investors already went through this path.

This path i meant to find ways to increase their cash flow situation so they can further use this money to buy, develop, etc in property.

Iam at an age where my full time job is secured, have a family and children and need to look at my road ahead.

This is why iam seeking your valuable advice since you have done this before.

Both my wife and i both work but her income isnt as good.

One option is to invest herself into a business and i continue my full time job.

Her interest is also going into business so is not a so call " buying a job" scenario.

I would like to know you view when buying a business what to look for?

Below are a few things we look at specifically and will speak to an accountant but wanted to know you view.


The business must be:

1. Franchise (proven working system)
2. Sales record
3. major expenses records
4. rent
5. profit

another question is from your experience is worth well getting yourself into business to increase cash flow or are there other options?

thank you guys/gals

BG

 

[Truly Exotic]

One piece of advice I always give is that, do not assume that

buying a business = success

buying a business is less risky then starting your own one however is still a risky exercise

if it were such a low risk venture, like real estate, then everyone would be doing it, plus the returns would be similar,

plus with franchises, often you are buying a job at the lower price end, higher price is different

sorry to be a party pooper but if you are expecting to get high returns by doing absolutely nothing, then you are most likely going to be disappointed even if its a established franchise

 

[pinkboy]

A few things from my quick observation:

Her interest is also going into business so is not a so call " buying a job" scenario.

1. Franchise (proven working system)

Your perception of 'buying a job' is somewhat skewed. If you are working in a franchise, who really is making the top dollar? You, or the Franchisor?

I like to apply the 'Triple Earnings' principle found here:
http://somersoft.com/forums/showpost.php?p=1257956&postcount=2
http://somersoft.com/forums/showpost.php?p=1215647&postcount=52

http://somersoft.com/forums/showpost.php?p=1262976&postcount=14

^^This is scary. Dumping $700k (plus the need for some working capital, closing costs etc - which will add up to another couple $100k). You are going to be solely responsible of $1mil in interest, relying solely on your success. Its not like buying a house for $700k....because the market around it props it up. If things turn bad in this type of business, it will be a lot more pear shaped than a house. Dont let the purchase price allude you to its success.

Do you/wife have experience in the field? Have you got Managerial experience? Have you got buisness skills, head around the operating laws, tax laws etc?

I dont know many people who 'struck it rich' with a Franchise. I know plenty who have gone to ruins, or barely broke even. Perhaps you might need to look for something that is more your 'style' because flipping burgers or twirling icecreams isn't going to get you where you want to be unless you can get niche, high density areas from scratch.

There are several successful business people on here who I recommend you read some of their posts. Ace In The Hole, sanj spring to mind. Geoffw has also posted many recounts and stories of his 2x Subway stores. It is this type of reading you need to get into to help you decide.


pinkboy

 

[Scott No Mates]

One piece of advice I always give is that, do not assume that

buying a business = success

buying a business is less risky then starting your own one however is still a risky exercise

if it were such a low risk venture, like real estate, then everyone would be doing it, plus the returns would be similar,

sorry to be a party pooper but if you are expecting to get high returns by doing absolutely nothing, then you are most likely going to be disappointed even if its a established franchise

Starting any business can be risky and even your second, third,... still contains those same risks.

Each business has different risks, some demographic, some social, economic, government etc - planning is essential, proper business plan not the back of an envelope.

Even REAL ESTATE can be risky - depending upon what you're doing. Buying a rent roll (what if you have a concentration of owners who walk?), sales: it is a people business (not internet based) so networking is essential and a whole heap of other factors. Running costs - aren't cheap, development - high entry costs, development risks, interest changes etc.

 

[MarkB]

Your perception of 'buying a job' is somewhat skewed.

Agreed.

Imo.

If you buy a business and you then have to work in it, else it doesn't succeed - then you've bought yourself a job.

It might be a very successful business (a high paying job) - but it is still a job.

So - for all the risks you take on and the hours you need to put into it - will it hit pinkboy's magic 3 x rule?

Both my wife and i both work but her income isnt as good.

Well maybe she can do some additional education or something that is a pathway to a better paying job.

Be a lot less risky than taking on $700k+ in debt.

 

[Macca]

Running a business is a LOT harder than it looks, sorry to shout but so many people go backwards in a business that they should come with a safety hazard warning.

I have owned a number of small businesses over the years and I learned a lot, usually the hard way and they are quite demanding of your time and mental energy.

You should assume that every franchise owner wants to sell you one, all the good sites are usually company sites, all the ones on the market are not as good as the one you will be shown, all will require far more time and effort than you are told.

If a person has created the concept, they are an entrepreneur, they know the workings inside out, when you take over you will quite possibly struggle to cope for a few months.

Your wife needs to get some managerial experience and some hands on time working in whatever franchise she is interested in before quitting her existing job. She should do this for at least a month, maybe 2 shifts a week and see how she likes it. If she feels that this will be too hard, then she should not buy a business as in business you do whatever it takes to make it work.

I would suggest she try something as a part time job first, perhaps an online business if she can find something or market stalls etc.

It may sound like I am anti business, I am not, I had a dozen or more and came out OK but you have responsibilities and at present you are going along OK, you also have the kids to consider, forget quality time if you have a business.

On top of this, what happens if it doesn't generate as much take home pay as her job does ? It can take years to get a business up to being better than wages.

Sometimes we don't appreciate how good we have it until we muck it up

PS: Some current business owners on SS are various Mortgage Brokers, Lizzie selling garlic and produce, Moyjos, Skater, Ace in the Hole, Pinkboy plus quite a few others. All are different stages of development so are worth reading.

 

[lizzie]

Thanks for the plug Macca ... and yes, a business is hard work - but also a lot of fun.

I'm personally a believer in creating your own business - find a niche that is lacking and fill it. I have lots of ideas running around in my head that I want to implement and, one online business in particular I think will be a success - with a lot of hard work, money invested and shamelessly promoting and marketing.

The garlic isn't so much hard work - it's a twice a year flat to your backside - planting - harvesting and selling - with a six month break in between, but you need a least a couple of acres and a reliable water source.

The wine based products are doing really well as a small local business, could do insanely better if I promoted better and sold Australia-wide with already a request from Brisbane for two shipping containers loads (I politely declined) - I don't want it to become a monster that consumes my life ... yet ... . But for something like this you need to comply with health and council regulations, such as needing a commercial kitchen.

My last business venture - atm - is a series of tourist cottages that we purchased thru the SMSF. It was a LOT of work to get set up, large (for us) capital expenditure ($1mil+) and several weeks of working our butts off in steaming heat to get the property up to scratch before our first letting ... we've got a day-to-day manager looking after the property at 20% commission plus costs - but the property should throw off enough to replace hubby's wage net and I don't want to be bothered with bookings and drunk tourists and cleaning etc ... this is a great business but you need the money first as it wouldn't work with a huge mortgage hanging over it.

One thing I found is that, if you go into face to face for yourself, you have to be a real people person - always chirpy, smiley, talk the brass balls off a monkey.

Our biggest success - that got us to where we are now - was probably buying - renovating - selling the family home over and over every 1-2 years ... but you do have to be handy on the tools so you're not spending all your profit on trades other than electrician and sometimes plumber.

Some people are entrepreneurs and some aren't ... if she's not of the above style frame of mind and passionate about the business, then there's no point as the hours are erratic (I finished at 9.30pm last night) and, although the hours are flexible, but does often require thinking outside the box.

Oh - and don't pay for any "goodwill"