By bridget w pollack, Guest Blogger
Published: March 3, 2016Updated: March 3, 2016
Ever walked into a neighborhood business that was recently purchased? The new ownership might have changed the paint color, décor, and equipment in a flash -- maybe even overnight.
If you’ve ever dreamed of revamping a business you visit frequently, you might be a good match for buying a business. Rather than starting your own company from the ground up, buying an existing business means you can jump right in, get to work and focus on growth.
Before you sign on the dotted line, you may want to consider the following pros and cons of buying a business.
Leadership Opportunities
Starting your own business means creating systems to manage the different components of your business, from operations to financials to even social media practices. Buying a business may mean picking up where someone else left off. Do you have the patience to sort through another person’s way of thinking about how to run his/her business, once you take the reins? If you’re stubborn, buying may mean having to adjust your work style to fit the business.
At the same time, many business owners decide to sell their companies because they no longer want to keep up with the day-to-day operations -- and they may have fallen out of good record keeping or organizational habits. Stepping in as a new owner is a great time to enact new policies and streamline the way a business runs. If you can enact change in a positive, encouraging manner, your leadership might be just what a business needs to get to the next level.
Financial Considerations
Buying a business can be very expensive. SCORE’s latest infographic, “It’s a Great Time for Buying or Selling a Business,” highlights typical sale prices for various industries. There are many opportunities available in the $80,000 - $200,000 price range, including eateries, salons and shops. But if you hope to buy a liquor store, gas station, or a business that specializes in medical services or online B2B sales, expect to invest between $250,000 and $400,000.
If you don’t have the capital to buy a business, bootstrapping a business from your own concept and bringing it to life can be just as rewarding as writing a check and settling down at your new desk. But if you have the capital to take over an existing operation, it may be a less stressful experience than starting from scratch. “All of the bugs of the business have probably been ironed out and all of the problems that the business has encountered at the early stage of their development have been resolved,” mentor Norm Silverstein explained on the SCORE Small Business Success Podcast. “Basically, most of the dirty work has been done when you buy an existing business. To me, that's the most advantageous way of doing it, and the least risky.”
Investment guidelines
If you decide to take the route of buying a business over starting a new one, keep a few financial guidelines in mind. First, don’t spend more than 15 percent of your net worth to buy an existing business. Then, keep at least 10 percent of your liquid assets available for future business needs or unexpected expenses. If you plan to seek financing from a lender, expect to make a down payment of 20-40 percent to get things started.
If you’re thinking of buying a business, visit a SCORE mentor to learn more about the process and what to expect.
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