How to Buy a Business

It is the fantasy of fools who assume that buying a business that is not doing well for a cheap price and then turning it around for a profit is the way to riches. In reality, according to the Small Business Administration the failure rate for most startup businesses is between 50 to 60 percent. However, many business experts see that it is closer to 80 percent for those foolish enough to buy a business and hope to turn it around for profits.

Buying a Profitable Business

The advantages of buying a profitable business are that you will see cash flow from the first day of ownership. A profitable business will have an established reputation and in a few cases a seller who will offer to finance the business deal.

Requirements for Buying a Profitable Business

When buying a profitable business there are a few requirements before the purchase. The first is that no matter how the business is presented to you do not buy the business unless they have been profitable for at least the last five years. Next, do not buy a business that has an annual pretax net cash flow of under $100,000, anything smaller is too small. The business needs to be in competitive advantage to similar businesses. The business you want to buy needs to offer something unique to customers. When looking for a specific business to buy, keep your options open. Look for the top businesses in their particular industry, even if that industry is currently struggling in the economy. Top businesses are the survivors when economic struggles are worst and they usually end up being the winners early on in recoveries.

When the Business Deal is Completed

Things to keep in mind after the business deal have been completed. Negotiate to retain the seller of the business to be a consultant. Make sure that you hire a good manager as well for even the best business will fail if it is mismanaged. Look to retain the good employees in the business and compensate them well in the transition as you will need people who know the products and understand the right marketing for you business.