Three Myths about Buying an Existing Business

Transcription:

Leslie Kuban:
On Wednesday, March 9, the University of Georgia Small Business Development Center is bringing back its popular workshop How to Buy a Business. This is a 90-minute virtual workshop at 10 o’clock in the morning, and you won’t want to miss it if you want to learn about entrepreneurship through acquisition. You will learn about how to search for businesses to buy, conducting due diligence and valuations, financing the deal and getting it across the finish line, and I of course will be chiming in on the pros and cons of buying existing franchised business. The link to sign up for the workshop is in the show notes below.

Leslie Kuban:
Today, I want to dispel three myths that I commonly hear from people exploring buying existing business. The first myth is that it’s passive. I think sometimes people believe that because there’s customers, employees, processes and systems already in place that it’s going to be less work and require less time. In my experience, it’s actually more work and requires more of your time for the first year or so of ownership. If you think about it, this plane is already in flight, and you’re going to have multiple learning curves that you’ve got to go through simultaneously. If this is your first time buying a business, you’re learning the ins and outs of being an entrepreneur for the first time. This business may be an industry that’s new to you, that you don’t have any prior experience in.

Leslie Kuban:
So you’ve got to learn the nuances of that particular business that you’re now in, the dynamics of the customers, the employee, and the culture that is already in place. Now buying an existing business can be a great opportunity if you have the time to put all in at least for the first year or so of your ownership of that business. Myth number two is depending on the existing staff to stay intact exactly as it is the day you buy the business. Realistically, I think you should expect some turnover. Sometimes people don’t like change, and they may see the changing of the guard as a little bit threatening, or they may just see it’s time for them to move on to their next opportunity, and you might also want some change. You’re probably going to have plans to grow the business. You might envision a new and different organizational chart for your business as you grow it.

Leslie Kuban:
I’ve oftentimes seen new business owners have the existing employees reapply for the new jobs that you’re creating within your business that you’re growing. Now, if you’re buying a larger business, there may be some management level employees already in place, and you may talk to the seller of that business about some kind of retention bonus that will incentivize the existing management staff to stay in place and help transition from the old ownership to the new ownership. That’s definitely something that you want to hammer out and negotiate with the seller upfront. Myth number three is that buying existing business can be a pathway to immediate income replacement. Even if the business is making money, most of the time buyers are taking a step back at first in order to take a longer step forward in the future. If this business is making money, you’re probably going to be paying a premium to acquire it.

Leslie Kuban:
You’re likely going to have debt, and then you’ve got to service that debt. So that’s an expense that is now eating into the cash flow of the business that you’ve just acquired. You probably want to grow the business, and there’s going to be a cost associated with that growth and reinvestment. Now buying this existing business indeed can be a shorter pathway to income replacement versus starting from scratch, but again, I think the expectation to be taking a bit of a step back in the short-term to take a much larger step forward in the long-term. These tips are just some of the points that we’re going to talk about if you attend the workshop on March 9th, and the information about the workshop and to sign up for the workshop is below in the show notes. I hope this has been helpful, and hope to see you in the workshop and appreciate you tuning in, and look forward to seeing you next week on Atlanta Franchise Today.