How the next business adventure can be done with confidence.
Business ownership can sound like an unattainable dream. Isn’t buying or selling a business for people like wealthy Wall Street investors? Perhaps not. It can actually be more accessible than many people think.
While buying a business can appear daunting, owning a local business can have positive impacts on the community.
“Locally-owned businesses keep the profits in the community in the form of jobs, customers, and taxes,”
says Gary Wilbers, founder of Ascend Business Strategies and a business coach with 30 years of experience.
And for small, local businesses, new owners often bring new ideas — allowing the potential to expand beyond the local market to increase profitability. For Gary, he recommends starting with a bit of research.
“My number one recommendation to anyone looking to buy a business is to do your research and don’t get emotional about the buy,” he says.
To help evaluate a business, Gary utilizes a framework called the 6P’s of business: people, promotion, processes, profit, pricing, and productivity.
People — Who is going to run the business? Is it completely dependent on the current owner?
Promotion — Does the business have a good marketing plan?
Processes — This is the knowledge of the people currently working at the business. Is this information documented? Can the business carry on if some of those people leave?
Profit — Profit is needed for the business to continue. Where is the customer base coming from? How many clients does it have?
Pricing — Do the sales happening within the business allow for enough profit?
Productivity — How many people does it take to make the business profitable?
While the 6P’s apply to both buyers and sellers in determining the value of the business, sellers will also need to develop a solid understanding of what the profit of the business is from gross sales versus net sales and what kind of margins they are getting for the business after overhead and expenses. Luckily, gross sales and net sales work hand in hand. Gross sales are the total amount of sales without any deductions, and net sales are the sum of a business’s gross sales minus its returns, allowances, and discounts.
Aside from a business’s potential, it is always a good idea to have personal finances and a business plan in order before thinking about purchasing (or selling) a business. Jennifer Schenck, co-founder of The Connection Exchange, suggests that potential buyers should develop a relationship early on with a lender in the banking industry to determine if the financial resources are available.
For the seller, she recommends taking an honest look at the business, both assets and brand, to determine what could be of value to others. Can value be brought to the business, and is it worthy of the time needed to make it a success? Is it enjoyable? Do the skills, experience, and interests of that business align with potential buyers?
If buying a business still seems too daunting, risky, or just isn’t a good fi t, there are a few other options.
“Franchises and licensing opportunities are an easy introduction into business,” Gary says. “There’s a big price range, and they come with a ready-made plan like a blueprint.”
However, anyone considering that option will still need to carefully evaluate the finances as many businesses often don’t profit until after the first couple of years.
“Venture capitalists need a lot of money,” he adds. Becoming an angel investor or silent investor can be an option for those with money to invest and who have the type of business experience that can help behind the scenes.
“Locally owned businesses keep the profits in the community in the form of jobs, customers, and taxes.”Gary Wilbers, Ascend Business Strategies
“Becoming a minority partner is another option if there’s a business you really like and see possible improvements they could make,” Jennifer says.
At a loss of what possibilities are out there? Getting in touch with members of the community can help.
“Observe and talk with various business owners, attend events, and ask for references from the people you meet,” Jennifer says.
Almost anything can be found online these days, but Jefferson City has a wealth of resources for buyers, sellers, bankers, accountants, and attorneys — all of which are important relationships to have. The Chamber of Commerce and the Missouri Women’s Business Center are great places to find information while websites like score.org can be used for finding business mentors. Business brokers can also be an excellent resource; although, it should be kept in mind that they have a personal interest in the sale.
Ultimately, both Gary and Jennifer recommend getting help from a professional when buying or selling a business to ensure these deals are mutually beneficial.
“Any investment involves risk,” Jennifer says. “Do your homework, but be willing to lose your investment. Start small and understand what your return could potentially be.”