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When Buying a Business, Established Businesses Are a Safer Bet

If you are interested in buying a business, remember that purchasing a company that is well-established will reduce your risk and present an opportunity for making a significant profit at the same time. Here are some other reasons why you might want to go that route, as opposed to starting from the ground up:

• When you buy an existing business, you will know that the products and services related to it are in demand. You will also discover that financing will be less difficult to obtain when you make the purchase because your lender will be able to analyze the company’s financial records, rather than relying on anticipated income.

• You will be purchasing a brand name, and in a position to reap the benefits of any networking or advertising the previous owner has done. In addition, while you can’t put a dollar value on it, attracting new customers and placing cold calls will definitely be easier because your business name and reputation is well-known in the community and in your particular industry.

• You will also inherit an existing vendor base and customer base that were built with a great deal of the seller’s time and effort. At the same time, to smooth the transition after the deal is closed, the seller will probably be willing to work with you for a brief period and help solidify those relationships.

• If you buy a business, you can begin working at once, as opposed to waiting for “opening day” to arrive, and you can also concentrate on planning for its growth. However, if you become involved in a start-up, you will have to spend a great deal of time, energy, and money on it before you can expect to make a profit.

• Because the business has a solid framework, as you get to know your customers’ needs and preferences, that will enable you to make some improvements and add certain new touches. This will help to boost your bottom line much more quickly than you would if you were trying to build a new company.

• With an existing business, you will also have a ready-made team of employees in place, along with equipment and systems that are part of the venture. As a result, things should run smoothly during the transfer of ownership and during the period of expansion as well.

• As a rule, when you are buying a business, you can cover the loan, draw a modest salary and even have some funds left to expand it. By way of contrast, some financial authorities say that a start-up really can’t be expected to make a profit for about three years.

Like many other factors that determine the success of a business, risk is also relative. For example, an investor may purchase an established business generating income of approximately $250,000 for $1,000,000. A financial institution will approve the loan because the company’s financial records reveal that its future income will support the transaction. In other words, when you become your own boss and buy a business, you assume a certain amount of risk, but you also avoid the uncertainty and possibility of failure that are inherent in dealing with a start-up.

A Business Plan for Angel Investors

A well written business plan will give you a much greater advantage when you are looking to raise capital from an outside source or from an angel investor. We’re going to continue to discuss accredited investors, business planning, and working with private investors through our series of articles relating to finding angel investment. It is extremely important that you have a well-developed business plan when presenting the venture to a third party so that you can clearly show that you are good risk as it pertains to small business investment. If you own a high gross margin income type of business and will be in your best interest to work with a small business investment company as you will receive much better terms in regards to this investment. It should be noted that capital always comes at a cost.

One of the best alternatives to selling equity in your business is to work with a small business investment company or SBIC. This is primarily due to the fact that SBICs have the ability to raise debt capital on your behalf through a number of different lending channels. Private investors have substantial business and entrepreneurial experience that can assist you in further expanding your business. If you are working with a private funding source then lawyer should always be involved with this process.

Large investments may be more appropriate for a venture capital firm especially if you have developed new technology or a computer program. It is important to never give up too much equity in your business to a third party. There are number of differences between working with angel investors versus working with venture capital firms, and we will continue to hone in on this matter through several additional articles.

More and more women are becoming angel investors, and they are primarily interested in providing capital to businesses that are owned by women. We will continue to discuss the benefits of working with female angel investors and minority investors as we continue to discuss private investment into small businesses.

As we have discussed many times before, it is imperative that you seek the advice of a lawyer that is well versed in securities law as well as a certified public accountant that can assist you with determining whether or not you should seek outside investment for your business. Only these professionals can provide you with opinions that will provide you with financing alternatives and insight as it relates to this matter.