Want to Buy an Existing Small Business? Ask Yourself - "Why is He Selling?"

Want to Buy an Existing Small Business? Ask Yourself - "Why is He Selling?"

By Lance Winslow



As a former franchisor, I've bought many companies, and I've sold 100s franchises over the years, and in retirement I do a little business consulting, nothing too overly challenging, just enough to keep my feet wet and my mind in the game. Now then, often folks decide during recessionary periods that they might like to buy a franchise, start their own business from scratch, or perhaps buy an existing business. But if you choose to buy an existing business it is paramount that you find out why the individual is selling the business, and the best way to find out is to ask him, her, or their business broker if they have one.

Not long ago, I talked with a client who was considering several types of businesses and found one she liked. So, I asked the dubious question, and she said she would find out, here is the answer given: "He is selling because he has taken a dive financially and at the same time he is selling his home All of his family have moved to another state where they have cell phone store(s)."

Okay, this is a legitimate story, after all the Smart Phone business is booming - many sprint dealers are doing well. Sprint has made that a 4G Wireless Market with cell towers in that state, and I know this because my franchising company had the contracts to clean the old towers long ago in that state. Meanwhile other major carriers are highly competitive in that market, one of the best in the nation, and it's a literal war, so it turns out it ends up being good for everyone.

The smart phone market is on fire, and it turns out that the new iPad working on 3G and later 4G, along with Kindles 3.0 response to that challenge, along with the coming tablet clones, and Windows on the World, are going to change computing as we know it. It is a smart sector to participate in right now.

Now then, why is he selling his current business, is it not making enough money, shouldn't he keep it and use that money to finance his newest business venture? If his business is so good, with good cash flow, and it is so guaranteed to continue the revenue stream, and such easy money, and can be run with absentee ownership, why on Earth would he sell? My client said; "because he needs the cash."

Okay but, if the business is 26-years old, and it generates cash, why sell it? Borrow against his cash flow instead? I have question marks. If it is a distress sell, then he'll take 40% less off the asking price and carry paper for another 20-25% - after all, if the business is generating money he knows you can pay it back, and since the business is so good and practically runs itself, what's the problem then?

Are you beginning to see why you need to dig deeper when purchasing a business, and why you must ask the question; Why are you selling? Think on this.

Lance Winslow is the Founder of the Online Think Tank, a diverse group of achievers, experts, innovators, entrepreneurs, thinkers, futurists, academics, dreamers, leaders, and general all around brilliant minds. Lance Winslow hopes you've enjoyed today's discussion and topic. http://www.WorldThinkTank.net. Have an important subject to discuss, contact Lance Winslow.

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