Have any of you purchased a business? (lease, medical insurance, sales)

[Johnny Danes]

Please only answer if you've bought one yourself.

Was it a difficult process? Other than the money to buy the business, what other investments/costs were involved?


I'm thinking of buying a small manufacturing business. That's my background as far as middle managment.

Thanks

[Hemlock140]

I bought an existing sign business in 1992, that had been in operation for 6 years. The owners were getting divorced and the court ordered them to sell and split the proceeds. Other than the purchase price, you should have enough cash reserves to pay the business expenses (salaries, rent, utilities) and personal expenses for at least 6 months. I found that due to absentee owners that didn't get along the customer base was down, but picked up when they found out that there was a new on-site working owner. By the second year I had more than doubled the previous owner's best year. You will also have to get state and local business licenses in your name, and register the company name (dba or corporation).
You will have to purchase business insurance, which is not cheap, and if you are not buying the building/land, you will have to be approved for a new lease or assignment by the landlord. Then you will need to register with the IRS for an employer tax ID, and with your state labor and industries/workmens comp people. Unless you have a working spouse with good benefits, you will need to get medical insurance, and disability to cover lost revenue and/or hire a replacement for yourself should you get sick or injured. Then be prepared to work long hours, some all-nighters to meet deadlines when you get really busy, and to eat a lot of ramen noodles when business is slow. I can't complain having done really well and raised 3 kids on the business until things got bad in 2008.

[Johnny Danes]

Originally Posted by Hemlock140

I bought an existing sign business in 1992, that had been in operation for 6 years. The owners were getting divorced and the court ordered them to sell and split the proceeds. Other than the purchase price, you should have enough cash reserves to pay the business expenses (salaries, rent, utilities) and personal expenses for at least 6 months. I found that due to absentee owners that didn't get along the customer base was down, but picked up when they found out that there was a new on-site working owner. By the second year I had more than doubled the previous owner's best year. You will also have to get state and local business licenses in your name, and register the company name (dba or corporation).
You will have to purchase business insurance, which is not cheap, and if you are not buying the building/land, you will have to be approved for a new lease or assignment by the landlord. Then you will need to register with the IRS for an employer tax ID, and with your state labor and industries/workmens comp people. Unless you have a working spouse with good benefits, you will need to get medical insurance, and disability to cover lost revenue and/or hire a replacement for yourself should you get sick or injured. Then be prepared to work long hours, some all-nighters to meet deadlines when you get really busy, and to eat a lot of ramen noodles when business is slow. I can't complain having done really well and raised 3 kids on the business until things got bad in 2008.

Man, that sounds like a nightmare.

[old_cold]

If that sounds like a nightmare, I'd respectfully suggest you may not be ready to own a business.
That was all pretty standard stuff (other than eating Ramen.....some businesses can be purchased with enough of an existing positive cash flow to allow you Kraft Mac & Cheese instead of Ramen noodles.

[Billy_J]

Most people selling a business want top dollar for the business "as it is". And you are not going to make a lot of money just continuing to run it "as it is"...

You can make money if you replace a paid employee with doing that person's work yourself.

Or many times people can go in, buy a business, make changes and large investments into the business, then over the long term make a good profit. These people know more and can do more than the original owners.

For example an old uneducated person might own a small town auto parts store. There may be many products on the shelves which do not sell well. Or products which used to sell well, but times have changed. A large auto parts chain can buy the business, get rid of all the poor selling products on the shelves, then restock with very good selling products. They KNOW what people want to buy these days. So they can get sales to go up 4x or more. They can also add modern efficiencies with computer inventory control and so forth. "Just in time" reordering. But all that requires a large additional investment.

Or you may have someone who currently owns one business. And they buy a second business. Then with the two businesses combined, there is a "synergistic" effect. Instead of having two separate "administrations" for each, you can have just one and save a lot of money on staff. Or say instead of having to pay for two computer payroll systems, you only need to buy one. So costs for some things from that point forward can be cut in half.

Basically people can buy a business, then go in and cut costs quite a bit (they know they can do that in advance). Or they can buy a business and increase sales dramatically (they know something the current owner does not).

[harry chickpea]

I worked in a business that was sold and was observant of the changes. The buyer brought in money men to do the major financing and had them on a board of directors. He knew the business, asked lots of questions, and cherry picked the parts of the business that he wanted and refused to take over the losses. Another key point is that he SPENT money quickly to correct some existing problems, and didn't try to hope for maximum profits in the first year. His moneymen were able to guide him on real estate and other issues where he was weak.