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To be your own boss, you don’t have to start from scratch. Instead you can buy an existing business. One upside: less uncertainty about whether the venture is viable.
Bank loans can be easier to come by, since the business has a track record. Plus, seller financing, which is typically even easier to qualify for than a bank loan, is common. “Probably two-thirds of first-generation businesses sell with some form of owner financing,” says Jack Gibson, author of How to Buy a Business Without Being Had. And as long as the business is sound, you should be able to draw a salary from day one.
Still, this is most likely a major investment—anywhere from tens of thousands of dollars to millions, depending on the size of the business and the industry. Don’t let your passion blur your view of the bottom line. Tread carefully and follow this plan instead.
You can get ideas at online exchanges, such as BizBuySell.com and BizQuest.com. But the best way to search may be through word of mouth. Reach out to bankers, lawyers, and accountants in your area who may have clients poised to sell. If you have an industry in mind, contact regional or national trade associations for leads.
Know who’s who
A business broker can help narrow your search (again, local financial pros can offer referrals). Just keep in mind that most brokers are paid by—and therefore represent—the seller. Unlike the case in real estate, buyer’s brokers are uncommon.
Consider what you can’t buy
The ideal acquisition is an established business in which you see opportunities to make improvements. When to think twice: “A business that is highly personalized and associated with one person is risky,” says Gibson.
Pay for a second opinion
There is no simple formula for putting a price tag on an established operation. Four times adjusted pretax earnings is “a pretty good average,” says Gibson, but a healthy, growing business may sell for seven or eight times earnings. Your lawyer and accountant can help, and an independent valuation by a business appraiser may also be a good investment. While the cost will depend on the size and complexity of the business, a few thousand dollars is typical. You can find a pro at appraisers.org.
Don’t dismiss a franchise
“For someone who has a lot of big ideas, a franchise may not be a good thing,” says Joel Libava, author of Become a Franchise Owner! The Start-Up Guide to Lowering Risk, Making Money, and Owning What You Do. But if you’re looking to buy a proven brand and a blueprint for doing business, a franchise could be the way to go. The tradeoff? In addition to a one-time franchise fee ($10,000 to $100,000) and startup costs—or an acquisition price if you buy an existing franchise—expect to pay ongoing royalties and other fees.