Although
creating your own business is an exciting and innovative practice, it is often
met with great challenges. The majority of start-up businesses or small
companies fail. Entrepreneurs commonly struggle with finances in regards to
marketing their product or service and distributing it.
The
nature of the small business is one filled with huge reward and even greater
risk. That being said, those entrepreneurs who have their hearts set on working
for themselves while at the same time decreasing the risk associated with
starting their own business can partake in small business consulting or
purchase an already existing small business. A small business for sale will
obviously vary in price, but for the most part, purchasing an already existing
business will mitigate risk because the company has already established
resources and a clientele.
When you decide to purchase an already existing
small business, it is important to go through a detailed evaluation process. This
process is essential; the investment you will make in such a company is
obviously substantial, therefore it is of the utmost importance to analyze all
aspects of the small business for sale.
The
first step required when purchasing a small business is to analyze your wants:
are you seeking a small business for sale to experience independence or are you
doing it for increased income? Once you have figured out your wants, you should
next consider your background. Typically setting up a small business makes more
sense in a field in which you feel comfortable.
Once these basic questions have been answered you
should use resources such as websites (particularly ‘BusinessesForSale.com) to
find worthwhile investment opportunities and to contact brokers to identify which
small businesses are for sale. The next step will require a full financial
review of the business: check balance sheets, statements of cash flow,
projected earnings, and past income statements.
When all the numbers have been reviewed and you have
found a suitable small business for sale, you must determine a valuation for
the business. Most industries have a valuation method that concentrates on the
previous year’s revenue. Fast growing businesses are priced higher as are
companies with more capital equipment.
When
a price has been determined, calculate a break-even point on the business. Ask
yourself if the business fits your needs given your particular situation. If you
have settled on the purchase, ask the owner if financing part or the entire
sale is possible.
