Buying a business 101??

Discussion in 'Growing and Managing a Business' started by AR90, Jan 23, 2012.

  1. AR90

    AR90
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    Hello everyone, this is my first day on this forum, as everybody else on here I'm looking for somebody who can help me with what I would say its a small lesson on investing. I'm 21 years old and I recently came into a small fortune of around $60,000 and I want to invest it wisely, I've been doing a lot of research on the internet about buying a business but I want to hear somebodys personal advice (with experience) than just read articles after articles. I'm planning on consulting with a broker but i want to learn as much as I can before stepping into somebodys office who might try to take me for a fool. Also, I think it would be a lot easier to understand these businesses listings if I had a simplified grasp on the terms such as gross income, cash flow, EBITDA, Inventory,etc.... I tihink the main point is to see the amount you're investing and the amount of the "profit" as well as how long it takes to make it that investment back. I want an idea of whats a good "profit" prospect when investing $60,000. I'm thanking in advance anybody who can tackle all these question.
     
  2. ArcSine

    ArcSine
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    Working with a professional is very wise, but if you use a biz broker make sure you find one who'll work for you as your "acquisition consultant", and paid by you. As with buying real estate, a broker who represents the seller is obligated to work on behalf of the seller's best interests, not the buyer's.

    A good initial step for you is to spend some time in a large well-stocked bookstore. Get to the Small Business / Entrepreneurial section, and you'll find several titles covering the basics of small biz acquisitions. After thumbing through a few, take a couple of good ones home and set aside a couple of days to really go through 'em (couple of rainy days, perhaps?).

    They typically won't be heavy reading at all, but will lay out the fundamentals in a plain-English manner. After this small time investment you'll have what you're looking for: a good grasp of the terms and jargon you'll be hearing, an intuitive general idea of how a small business should be valued, how to go about vetting an acquisition candidate (financial statements, tax returns, etc.), what kind of professional advice you should seek, and a big-picture idea of how a purchase should be structured.

    Note that small businesses tend to score pretty high on the "Unpredictability-O-Meter": One or two major customers go away, or that key employee quits to go back to school, and suddenly your revenues and cash flow are in the tank (and you're bidding your 60K a tearful farewell). Therefore, "risk management" takes on critical significance when analyzing a potential small-biz purchase, so keep that in mind in your reading. You'll want to pay careful attention to those chapters that describe what steps to take to help protect yourself, as a buyer, in the investigation process. There are no foolproof guarantees when investing in a small company, but putting the right protective mechanisms in place in your contract might, in some cases, help prevent a complete wipe-out.

    This will not, of course, substitute for renting professional brains (accountant, lawyer), but the stuff you'll glean from the books will be very valuable as you're scouting oppy's and working with your advisors.

    Cheers, and best of success with your project!
     
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  3. stan1972

    stan1972
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    Arcsine is right - you need to learn the basics. I bought a floral shop three years ago and I didn;t know much at all when I started looking for a company to purchase and so I bought a book from the Diomo company - how to buy a good business - it was very helpful to me
     
  4. bestbuys4busines

    bestbuys4busines
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    Congratulations on making a smart choice to do some research before jumping into running a business. If you can I would recommend putting your money aside and doing some study, home study is fine, but you need to understand business management and marketing before going any further. It could be the difference to you being highly successful and getting a huge return on your investment or closing shop in a year. Some councils have free training :)

    My second bit of advice to you is to make a list of the things you love, things you are good at, things you would like to do. Then narrow that list down to pick a business that will suit you and you will love. Don't buy a business you are not going to love or you will feel like it is a chore rather than something fun to grow.

    I have a huge list of ideas on my site - www.ideasforhomebusinesses.com.au and some business advice on my blog www.bestbuys4business.com please take a look, there is a lot of free advice for small business available and some great, fresh business ideas to start from scratch.

    If you are looking for an estabished business you could consider a franchise, because you can talk to franchisees (individual owners) and get a feel for the quality of the business and the business model.

    Good profit is when you can take away all your expenses and still have a good deal of money left available in the business for a rainy day or to invest in growing your business. If you need further advice my contact info is on my websites.

    Cheers
    Michelle
     
    #4 bestbuys4busines, Jan 24, 2012
    Last edited: Jan 24, 2012

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