How to Get Started

When beginning a business, most individuals think in terms of a pure start-up.  The owner-entrepreneur decides upon a business or profession, finds space and opens shop.  The most attractive thing about this approach is that it usually has the least demands on cash investment, although the time involved certainly doesn't necessarily mean the least capital investment.  Considering another model can be a sound strategy.

Buying an existing business can be a very sound approach if done properly.  That means thorough due diligence, but it also means knowing what opportunity you want.  The simplest is basically buying a job.  These businesses are well run, established entities with strong goodwill.  These sales are likely to be priced based upon a discounted cash flow.  If you do your homework, review financial records, speak with suppliers, customers, employees and regulators, valuing such a business can be done with confidence.  Of course the problem is finding a seller who is willing to disclose to the world they are selling.  Most such arrangements are done in complete secrecy, so going beyond financial records is rare until a purchase agreement is in place.  There is almost always "good faith" money required, and sometimes due diligence is delayed until post-closing.  Then the buyer is dependent on enforceable "representations and warranties."

The other purchase opportunities revolve around searching for underperforming businesses.  These are the deals where true entrepreneurial spirit comes into play.  You are betting on yourself to better manage and capitalize on a business.  These buys can often go for a discount under even liquidation of assets.  The risk is, are you really buying a dog or a diamond in the rough.  If you have experience building a business and solving problems, then these are probably the opportunities for you.  Not only will your business earn an income, but you can make a significant return on your capital.  Once again, the key is thorough due diligence.

Franchise opportunities come in all sizes:  multi-million dollar fast food franchises to tens of thousand tanning salons.  The entry barriers can be huge from both a capital and experience standpoint.  The benefit of franchises is an existing, and ideally proven business plan, uniformity of product and presentation, marketing, name appeal and goodwill.  Of course in many franchise operations, none of these actually exist.  Of course if you as an entrepreneur can spot the coming trend, then reaping a gigantic reward is a real possibility.

I can help you evaluate business opportunity, review contracts, leases, even environmental due diligence as well as refer you to or coordinate expert review of pro forma financial statements, tax returns and human resource records necessary for a sound business valuation. Then I can assist in negotiating a sound buy-sell agreement including the all important representations and warranties.

© William Hudnall 2011

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