Buying a business is a big decision. Picture the lifestyle that you can sustain. Think about what you can afford. Look into businesses roughly in the price range of 10% cash down. If you don’t have 5-10% it might be difficult to get into that business without special circumstances. Determine how you’ll learn to run the business and keep in mind that the employees will likely stay with the business and you can learn from them and the owner.
If you are an employee hoping to buy your employer’s business, the SBA considers you favorably, so funding will be easier for you.
There are a few special considerations to ask of yourself:
If you run the company, who will do your job? Factor in the cost of that person into your projections
If you share the ownership of the company with other employees, how will you allocate and manage the business? Will you establish a Board of Directors?
How will the new org chart work if you have moved from a hierarchical structure to one with peers/partners?
Regardless of the kind of Buyer you are, be sure to assemble a team to help as your sounding board. Include one personality that pushes the gas pedal (yes, do it!) and another who will help you brake (no, careful!). If you put just one or the other on your team, you might make impulsive decision or end up with Analysis Paralysis.
Download the entire presentation that I deliver periodically for SCORE via the SBA.
Pace yourself. Sometimes evaluating too many businesses at once is like sniffing too much perfume- you need to cleanse your palette, so stick to your main Selection Criteria to narrow your interests. Once you’ve found your target company, you will need to assess it objectively. Entrepreneurs take many approaches to due diligence, but listed above are a few common documents and steps they take.
When you consider how to finance a business, look into a combination of personal investment, friends and family, seller financing, SBA Loans, Conventional loans and even ROBS where you convert your 401K into an investment into your own business.
TEMPLATES FOR YOUR BUSINESS PLANNING
Rather than think about a Business Plan, which is often thought of as a long document created for someone ELSE, think about business PLANNING as something you do for yourself. Don’t over-engineer your plan. Think about the simple fact that month-to-month you need to service your payroll, rent, debt and other expenses. Do you have enough buffer? Cash flow is such an important part of business planning that if you only did ONE thing, I would look to cash flow management as your main item.
Seattle’s SCORE has come up with a wonderful easy business plan that encourages you to answer 9 questions with 15 words or less, then do some financial projections including cash flow. I think this is a great approach. The LEAN CANVAS is a 1-page business model that takes under 20 minutes to create (by Ash Maurya). It’s perhaps one of the easiest ways to get started. Here is where you can find all of the SBA templates.
