Photo by Sora Shimazaki
We get a lot of corporate refugees here at Apex. These are people who got a buyout or have finally had it with corporate America and are escaping. They are often professionals at the top of their game in the corporate world, but are not really acquainted with the fact that they are now beginners in a game they’ve never played. In this article we’ll briefly sketch some of the themes we touch on when guiding first-time business owners.
Start with Why
Don’t just browse listings on BizBuySell and other websites. Take the time to ask yourself why you want a business and how you will go about getting one:
- How will you finance this deal?
- What is my emotional and financial risk tolerance?
- Is my family on board?
- What are my strongest skills? Where am I weakest?
- What kind of lifestyle do I want?
- How many hours a week do I want to work, both in the first 1-3 years and then long term?
If you take the time to start with why, and answer these questions, you won’t be adrift on a sea of business listings and “maybe” possibilities. You’ll be able to see right away whether a business aligns with your answers to all these questions.
Build a Team
If you don’t already have an accountant, banker, attorney, and financial advisor in your life, fill in those blanks. If you need referrals, we’ve got plenty.
We’ll also add ourselves, business advisors, as an important resource in this journey.
What Kind of Business?
With your how and why answered, and a team to bounce ideas off of, you can then look at business types. They include:
- Owner-operator (you’re around on a regular basis)
- Semi-absentee (managers are in place who need leadership from you)
- Asset-light service businesses (think salons, maid service…the value is in relationships and contracts)
- Asset-heavy businesses (landscaping, equipment rental…the value is in the equipment and inventory)
We also try to distance first-time buyers from the notion that they must be “passionate” about the business they own. Boring businesses are stable, simple to understand and operate, and are resistant to trends and recessions.
Beware the newest frozen yogurt/cupcake/cookie/chicken finger fad or new technology that hasn’t proven itself yet.
Look at the Numbers
While it’s true that sellers like to talk about potential growth opportunities (and buyers love to hear about them) what we like to point first-time buyers to are financial statements.
Are there consistent profits or an intelligible trend line?
Are the revenue streams predictable and distributed among a varied client base?
Are the financials and tax filings clean?
While there’s a certain allure (and even, sometimes, a fun aspect) to buying a fixer-upper house, that should never apply to a first-time business purchase. If the business isn’t working when it goes to market, stay away.
Ask the Right Questions
Take the opportunity to ask the seller all kinds of questions. Need some inspiration? We’ve got enough that we didn’t just write one article about those questions, we wrote two.
Be Choosy
The right deal will match a lot of your needs and desires. Beware of forcing a deal to happen when the financing isn’t there, or overlooking staffing or due diligence issues just because you “love” the business. Ask us how we know these are bad ideas.
The greatest strength of a first-time buyer? Being able to walk away from a bad deal.
Prepare for Closing
Those first three months of running the business will be challenging. Prepare for a steep learning curve and more lessons in a week than you might have experienced in corporate life in a year. Be patient with yourself. This is going to take time.
Do you want help with this process? Contact us today.