Challenges for New Businesses

Given all the reasons for buying an existing business, why would anyone start from scratch?

Sometimes there is no choice. The type of business you need may not be for sale. Or you may have an innovative product or service that no one else is offering. But more often, people who start their own businesses are operating under one or more misconceptions. Some people simply want to avoid an existing business’s liabilities. But someone purchasing a business also gain their assets, and those can be sold off to settle any debts. The seller can also protect the buyer in a variety of ways that can be negotiated. Others fear that old systems in an existing firm are too difficult to change.

However, small businesses are usually easy to modify, and the employees often embrace change for the better.Often, people do not want to pay for “goodwill,” which is not something one can touch or feel or amortize. But goodwill has a price for a reason – it has value. It’s much more expensive to build it from scratch that to buy someone else’s existing goodwill.

One expert cites an example of passing on opportunity to purchase an existing business with good terms and a great reputation. The expert says his own ego got in the way – that he wanted to start fresh, and he thought he would be unable to change the old business to his own style. Instead, he started his own, competing business. The new firm stumbled along, while the old one grew many times over the earlier price. He says it took him more than 10 years and large sums of capital to approach the success of the firm he passed on. He estimates losing more than million by his decision.

MLM AND FRANCHISE DISADVANTAGES

Similarly, network multi-level marketing (MLM) and franchise purchases can also turn out to be poor decisions. While there are legitimate opportunities in these fields, there are also many shady operators. Business MLM opportunities (also known as network marketing) require a person to resell others to build a multi-level structure. There are a few well know MLMs that have become household names, but the vast majority ultimately fail.

Usually, an MLM will sell products that cannot be purchases anywhere else. Many times, an MLM is used because these products cannot be sold through regular distributors and stores. Those who invest in these schemes soon find it’s not so easy to pull their friends and families into the organization. They also soon find that the MLM consumes too much time. The best advice is: if you want to sell something, buy a retail store and do it properly.

Franchises can offer some advantages, such as a good system, a proven market presence and often financing. But do your homework: make sure the franchise gives you solid support, not a half-baked plan. Make sure you do your homework, meet lots of other franchisees and visit their going businesses. Real numbers from real people working the business in the real world is the best information you can gather. For both MLMs and franchises, a good approach is to only consider brands you’ve heard of before. If you haven’t heard of Sam’s Smoked Hams, nobody else knows them either. And if you don’t have good name recognition, you’ve lost a major advantage.

RESEARCH, RESEARCH & RESEARCH

No matter if you decide on buying a business or exploring other options, you’d got to engage in due diligence – researching everything you can about the opportunity, its history, market , reputation and any other factors you can uncover.

Start with a business plan. If you don’t want to do it yourself, bring in someone who can handle the plan. But make sure you’ve done thorough planning and research on customers, employees, marketing, finances, operating systems and other risk factors.

Overall, buying a going concern means you avoid many of the pitfalls of starting a new business, and your odds of success are greatly improved.

Questions to consider Before buying a business

How much money will the sale require?
Have sales increased or decreased annually? By how much?
How much inventory do you have?
How much debt is attached to the firm?
Will you remain after the sale for a transition period?
What makes your business unique?
How do you obtain customers? By bidding for work? From repeat clients?
How can I grow your business?
How can I add value?
How does economic stress affect your profits?

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