Saturday, August 30, 2008

Why This May Be a Great Time to Buy a Business

Times are challenging. Consumer confidence is down. Credit is tight. You'd have to be crazy to buy a business in this environment right? Maybe not.

First, there are a few preconditions: Make sure you have enough cash on hand to do effective marketing. One of the most common mistakes of new business owners is to grossly underestimate the need to advertise. Even loyal customers need to be reminded of your existance on a regular basis, and new customers are always essential. Second, find something you're really interested in. You're going to be immersing yourself in it. You don't have to be an expert in the field. I know plenty of people who have successfully purchased businesses in fields they had little or no experience in, but you have to like what you're doing. Third, if you're going to buy an existing business, get one with a good reputation and location. The main advantage of buying rather than starting is to take advantage of an existing client base.

Why is now a good time? Recessions come and go. Seasoned business veterans have learned how to deal with them. But, it's hard work. Margins are lower, budgets are lower. Basically, you have to work your tail off for limited return until the economy recovers. People who were considering retiring in a few years anyway may well decide now is the time. Real estate values are lower and lower sales figures in recent months may justify a bargain purchasing price. The name of the game in business is buy low, sell high, but few people actually practice it. Most people wait until the economy is humming along nicely to jump on the bandwagon, setting themselves up for a rude awakening when the inevitable slowdown arrives. Getting in at the bottom of the cycle can help you develop efficiencies and good cash flow discipline habits right off the bat.

Take advantage of the seller's experience. You may have some great new ideas you want to implement. Some may work, some may not, but somebody who has kept a business running for decades through good times and bad has valuable insights and wisdom to share. Try to make at least a few weeks of consultation part of the package.

If you're shopping for a business of your own, don't wait until things turn around. You'll only be adding to the purchase price. If you're going to be in it for the long haul, you'll need to learn how to operate in a sluggish environment anyway. If you have the working capital and the drive, this could be a great time to get to it.

No comments: