Startups

If you are considering buying an existing business, take time to investigate the business thoroughly. Don’t be too eager. Many people feel they should get into the business and then worry about the problems as they develop. An investigation of all the problem areas may indicate that you shouldn’t buy that particular business in the first place. Make sure the price is not too high.  Many small businesses are not profitable enough to give an acceptable return on both the buyer’s time and money. If the buyer wants $30,000 per year for working 60 or 70 hours per week and wants a 12 percent return on his $100,000 investment, the business must net $42,000. Analyze the past performance of the business you’re thinking of buying to be sure it can satisfy your requirements. If you are willing to take a reduced return on your time and money for the sake of self-employment, do so with your eyes open — know the facts. Most buyers don’t ask enough questions or require enough financial history to make an informed decision. Any business worth buying should have kept adequate records. The inability or the unwillingness to provide the proper financial information is an indication that the business may be overpriced. The need for professional assistance when buying a business cannot be overemphasized.

If you start your own business, improve your chances for success by avoiding these common pitfalls: Lack of Money: You’ll probably need capital to start your business, plus a cash reserve until your business becomes self-sufficient. Plan your cash needs carefully and realistically, and provide a generous cushion for setbacks and unexpected expenses. Consider leasing equipment instead of buying. If you must buy, look into used equipment. If your business is going to need a start-up bank loan or other financing, obtain the money before you make any major commitments. People problems: Make sure that you’ll be able to hire and pay for the employees you need, especially if your business requires specialized skills. Evaluate your own business skills honestly and objectively. Do you have both the financial and marketing skills that your business will need, or do you plan to hire someone who does? If you decide to take partners into your business, take a very close look at your potential partners. Partners don’t have to be best friends, but they should like one another. Even more important, they should have membership agreement so that each partner can examine in advance the pros and cons of the partnership arrangement. Have your tax advisor and your legal advisor review the agreement before the document is signed. Be sure to line up qualified accounting and legal advisors, as well as any other experts you may need. Good advisors can mean the difference between success and failure, especially in the early days of your business. Insufficient planning: Research your industry and your competition in depth, and prepare a written business plan covering several years. Write a short mission statement for your company, identify your target market, and state your business plans as specifically as possible.

If you are considering buying an existing business, take time to investigate the business thoroughly. Don’t be too eager. Many people feel they should get into the business and then worry about the problems as they develop. An investigation of all the problem areas may indicate that you shouldn’t buy that particular business in the first place. Make sure the price is not too high.  Many small businesses are not profitable enough to give an acceptable return on both the buyer’s time and money. If the buyer wants $30,000 per year for working 60 or 70 hours per week and wants a 12 percent return on his $100,000 investment, the business must net $42,000. Analyze the past performance of the business you’re thinking of buying to be sure it can satisfy your requirements. If you are willing to take a reduced return on your time and money for the sake of self-employment, do so with your eyes open — know the facts. Most buyers don’t ask enough questions or require enough financial history to make an informed decision. Any business worth buying should have kept adequate records. The inability or the unwillingness to provide the proper financial information is an indication that the business may be overpriced. The need for professional assistance when buying a business cannot be overemphasized.