Buying an existing business as a fastlane?

[Colbehh]

How does everyone feel on buying an already existing business that is already generating cashflow versus starting your own that is, if the person already has the capital or lines of credit to buy the existing business. I think some people are more than capable of running a business and expanding it but do not always have the creativity needed to start their own. Thoughts?

 

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[Double D]

Hello colbehh, I did a quick search on buying existing businesses and came up with 5-6 threads on this topic. Hope this helps......:smx2:

 

[KC Dash]

The first question that comes to mind for me is: How much can it be expanded? And then How much time and energy is needed to expand or run it at the current level? Then decide if it is better to start a biz or buy an existing depending on the payout and investment.

 

[msa1]

Assuming due diligence has been done i'd say its easier to buy Chevy than to build one.

Your asking kind of a big question. Alot goes into building a business both financially and your own time.

If you have more money than time (and the experience to not run it into the ground) then buying an established business may be the way to go.

If you're a young single guy working your way up. It would certainly be more rewarding to say you started from scratch.

 

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[White8]

By buying an existing business, you leverage the work of someone else and if you do your due diligence correctly you have something that cash flows from day one as opposed to feeding it for a period of time.

Something I have noticed in business shopping is often businesses are being sold by people in their late 50's who started the business while in their 30's and spent the first 10-15 years building the business up to the point where it was large enough to be pretty profitable. I personally prefer the prospect of saving 10-15 years of my life. That's not to say that I don't plan to start businesses. I recently bought a business and plan to start some complementary divisions as well as buy some that serve the same customer which would be easier than starting without a known name in the market.

 

[TaxGuy]

great philosophy there White!!!

what's faster than maybe using 10-15 months of research to target the right company to buy vs. 10-15 of starting and progressing a company to the point of success....

btw the richest man in the world(Warren Buffett) didn't start the business he currently runs(Berkshire Hathaway, founded in 1839 and merged in 1888) and he's obviously full of fastlane ideas :smxB:

 

[MJ DeMarco]

Flipping businesses can be Fastlane ... there was an article in the NY Times about guys who buy web businesses, retool them, and resell em.

Obviously, the practice is much like flipping houses ... you have to find an under performing assets and retool / remarket it. Then resell.

 

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[Colbehh]

By buying an existing business, you leverage the work of someone else and if you do your due diligence correctly you have something that cash flows from day one as opposed to feeding it for a period of time.

Something I have noticed in business shopping is often businesses are being sold by people in their late 50's who started the business while in their 30's and spent the first 10-15 years building the business up to the point where it was large enough to be pretty profitable. I personally prefer the prospect of saving 10-15 years of my life. That's not to say that I don't plan to start businesses. I recently bought a business and plan to start some complementary divisions as well as buy some that serve the same customer which would be easier than starting without a known name in the market.

This is my train of thought as well. If you have invested the months of research into and start picking up where the previous owner left of after already building it for 10-15 years it seems like much more of a fastlane than starting from scratch and having to wait for your own business to become profitable. Although, it is MUCH more rewarding to start from scratch I feel like you have to really know what niche you're getting into and have an extremely detailed business plan and way to implement it into you market. Also, some of the businesses I have been looking around at many of the owners still want to stay around and work and help expand the business and not see it run into the ground. I think this would be a great way as you have the person who knows the market already and can give you advice while you gain experience in the field and will possibly prevent bad learning mistakes.

MJ, I also like the idea of flipping the web businesses. They have many of those that are semi profitable but are low cost and retooling them to flip sounds like it could a nice venture.

 

[RealOG]

I have a friend, Jeff, who does this with standard businesses.

He searches for businesses built by owner/operators: plumbing, health care, massage therapy, etc. These businesses started as an "S", and as they grew, more people were hired and employee base was built very flat. End result is one owner/operator with 35 people reporting to him.

Usually they are languishing on the market because the owner cannot leave without the business falling apart. Only person who can take over the business is someone with the same job skills (plumber, doctor, therapist) but most of those folks do not have the money or ability to get financing.

Jeff comes in, structures a deal where the owner can get out of the business, but has to be involved over the next couple years via an earn-out. Jeff restructures the business, installs an organization hierarchy and removes a lot of the inefficiencies. There tend to be a lot of inefficiencies when a owner/operator is running the show.

Once the business is restructured, it can now operate on it's own without the owner being involved and is much more palatable to a business person looking for an opportunity. He resells it for a profit.

Some things I have noticed while watching him do this:

1. Whole process takes 2-5 years and is very similar to value plays on commercial real estate, except that the upsides (and downsides) tend to be a lot higher.
2. Customer (revenue) are the most important variable in the equation. Whatever you do, make sure you are tending to customers and customer service does not suffer.
3. Hire a good manager. 90% of employee issues are related to management. Find a good manager and keep them happy.

There are tons more, but these are the mental notes I have made while watching him do this stuff over the past five years.

RealOG