Buying an established business?

[Azzurri]

Hello,


I'm new to the forums and I've been lurking for a bit and I decided to register. I just have a simple question, what's do you guys think about buying an already established business, and learning the ropes from the owner, until you get the hang of it. Of course I would need to know all the info and see if it's profitable enough for me to make a living and improve it.

I know a lot will say start one up, but I think for me it would be easier to buy a smaller company which makes a decent amount and build it even greater from there.

I was looking in the range of about 60-100,000$ I have a good amount saved and a good job (family biz) but I would also finance some.

Thoughts? Thanks guys and gals!

[Privateer]

I've bought and sold a couple of businesses over the last few years. I think it can be a great way to get into any industry you choose.

I have a couple of pieces of advice from my experience.

1) Always get qualified accountant to go over their books before you buy. Don't take their word for everything being on the up and up or trust yourself to spot discrepancies. I'm pretty good at running the books on my businesses, but some who does nothing but will spot things I miss. If they won't let you see their books before buying run.

2) Form an LLC to buy the business instead of buying the business yourself. Don't skimp on the operating agreement. If you assume the owner's debt's with personal guarantees then the guarantee comes from the LLC not you personally. It protects what you already have from the possibility of the new business failing. Make sure the contracts have your LLC ssuming any debt, not you personally.

GET A LAWYER OR QUALIFIED PROFFESSIONAL TO HELP WITH THE OPERATING AGREEMENT. DO NOT JUST USE LEGAL ZOOM!

3) Right after buying find every vendor from which the company buys supplies. Start taking quotes from new vendors to see if you can get the same or comparable service/product cheaper. Make sure to give the current vendor a chance to bid on your business. People will do more to stop from loosing business than to get new business.

This is really worth doing. Assume you are in a business with a 20% profit margin, and 30% of your cost is paying vendors. Reduce all vendor costs by 10% and you instantly increase your profits by 15%.

4) If you are looking at a business that has a substantial amount of debt then try to get the debt reduced. Get all of the business' creditors together and explain to them that the old owner has mismanaged a good business nearly into the ground. Explain that at the current debt load the business can not stay open. If you are forced to close the business then the only money they will get is from the liquidation of the business' current assets.

Instead you are offering to settle all of your current debts at 15 cent on the dollar. Paid over 24 months without interest. Since they will only get 10 cent on the dollar for assets at liquidation they are still make 50% more than they would if they do not restructure the loan. And since the new debt pool allows you to stay in business they keep a current customer and make more money in the future.

They will yell and scream, and cuss you blue but in the end they will do it. Get all your creditors together in one place when you do this. Those that would hold out alone will be peer pressured into agreeing by the others who understand it is in their long term best interest.

For the cost of bagels, coffee, and renting a conference room if you don't have access to one you can instantly create $40k-100K of equity in your business. Remember if you formed your LLC right the fact that you assumed a "personal guarantee" when the business was purchased is irrelevant. When they threaten to sue (they will) the only assets they can go after are the LLC's assets. Since the LLC's only assets are that business the only choice they have is to work with you. This is why it is so important to make sure that the buying contract is worded properly and the LLC is formed well.

These steps really work. I have bought, completed steps two and three, then resold 4 different companies in the last two years. It is a great way to make a couple thousand quickly, since the company is way more valuable once you are done.

One last thing, don't limit yourself to companies that are for sale. If there is a company you would like to own, find out its current owners home address and send him a hand addressed letter explaining you'd like to buy his company. Put your business card with whatever title you are giving yourself in your new LLC in the letter and you are good to go. The owner might not sell but he will think about it. And buy contacting owners directly you can get a better price b/c they aren't having to pay a business broker's commission

[Azzurri]

Thanks, awesome info.

Another question, what if the company isn't in the country? I plan on purchasing one in Canada (have all my family here). It's to get my foot in so I can move up there.

[Privateer]

No idea about that, except that I believe any company that is more than 50% owned by an American citizen has to pay federal income tax, just like Americans are taxed on world wide income. I would imagine there would be credit paid on foreign taxes, but really don't know.

I say when in doubt, get a lawyer. In this case one in both the US and Canada