Can I possibly buy a business?

June 8, 2009 7:17 PM

Help me find out if my dream is totally unrealistic!

Hi mefites,
I graduated from college two years ago and immediately began working at a stressful, high-paying job, where I stayed for a year and a half. I lived frugally and saved quite a bit of money, and I was lucky enough to keep almost all of it out of the stock market. I was again lucky earlier this year, when I decided it was time to put my money into the market, and I just about nailed the bottom. So if I sold my stocks today, I’d be sitting on a substantial (to me) cash cushion of $80-90,000.
I have struggled for a long time to figure out what I want to do with my life career-wise. I've considered a number of diverse options - med school, law school, going for a PhD, and on...but so far I haven't felt strongly enough about any one thing to commit to it. That's why I went into finance immediately after college - I could get the job without any higher education.

Anyways, I've had this nagging thought for the past few months...I have always wanted to run my own business and work for myself, but it has always seemed totally unrealistic for a young guy like me with no experience and no brilliant ideas that will sell themselves. Starting a business is for people who have worked for a while, developed some unique skills, saved some money, etc. Even then, most small businesses fail.

So...nothing has really changed, except that I have a bunch of cash. Starting a business from scratch is still unrealistic, but now I could buy an existing business. Still probably a risky gambit, but much less so when everything is already set up and running.
I know this sounds a bit pie-in-the-sky, but I'd like to learn more about the feasibility of something like this. At this point this is admittedly still just a vague, inchoate idea in my head. $90,000 seems like a lot of money to me, but maybe it's not. Obviously I would not be able to buy a large business. So I guess what I'm looking for is advice to learn more - resources, books, places to look for info. I know how a business works financially - I can read a balance sheet, determine cash flows, etc...but I know little about actually running a business. How can I find out more, and decide whether this is a realistic idea?

posted by anonymous to work & money (23 comments total)

Yes, you can buy a business, but "business" is a broad term. There are a lot of "businesses" out there.

You can start your own dry cleaners for about 10,000. Do you want to do that? Do you want to own a deli? Do you want to own a franchise? Do you want to a lawn-maintenance company? Handyman shop?

Frankly, saying "I want to own a business" is like saying "I want to have a job". What are your skills, what are your interests, what is your background? It's hard to run a coffee shop, for example, without having actually worked in a coffee shop.

You need to give us more info!!
posted by unexpected at 7:48 PM on June 8

I do not now, nor have I ever, run my own business. However, most of the people I know who have started their own businesses either worked for someone or had a relative who had a small business. That's where they learned how to manage a store, staff, inventory, business regulations, and the other thousand things that running your own brick and mortar store entails. They also work(ed) constantly and some travel frequently to meet with suppliers. My suggestion: pick an area that may interest you and go for a job there. Watch and learn and, while you're there, learn everything you can about how the business operates. There are always people looking for business partners, to bring a bit of cash into a business, but I don't think I'd recommend that until you are in a position to judge whether something is a going concern that needs a bit more $ to expand or whether it's on it's way under. The drawback of working for someone else while you learn is that you will most likely be working under your capacity and may be bored/frustrated/severely underpaid. In Canada, the feds have some small business oriented courses that you can take for a minimal amount and which are especially good for learning the rules governing import/export, reporting, etc. Is there a junior chamber of commerce around with the same where you are and where you might be able to make a few contacts? Since you're young, there might even be government incentives and programmes to help you to start a business.
posted by x46 at 7:51 PM on June 8

If you don't have a clear idea of what your passion is, you will end up buying a job, not starting a business.

I highly recommend starting with this book.
posted by The Deej at 7:53 PM on June 8

If you want to be inspired, go read Paul Graham. Especially this essay (http://paulgraham.com/notnot.html) which directly answers some of your questions.

Yes, it is totally realistic. Having a full-time job, especially for a youngster like you with no dependents, is a ridiculous squandering of time and potential. After running my own business for almost three years now I can say without reservation that I wish I had done this when I had no ties and nothing to lose.

The best argument - I love this - is that even if you fail, you are *so much* more valuable to potential employers than a person of equivalent age who simply followed the standard career track. Even if you choose to reenter the wage-slave world, you'll have experience which simply can't be touched by people who never took the risk. In other words, it is almost a can't lose proposition at your age.
posted by Invoke at 8:00 PM on June 8 [2 favorites]

I don't have any recommendations for educating yourself but if you want a couple of tidbits...

If buying a business, take thier financial figures with a huge grain of salt.

A close friend's advice (after years in the food industry) is, try to avoid doing anything that requires a location. You're a sitting duck for crazy customers, local bylaw enforcement, crooked inspectors, greedy landlords, vandals, etc.

I'd just add that you shouldn't expect to be able to run a small business at arm' s length. Be sure it's something you could see yourself involved in, on a day to day basis, for years.
posted by bonobothegreat at 8:08 PM on June 8 [2 favorites]

If you like the idea of running stuff and making things happen but don't care so much what the stuff is look into project management. It's kind of like running a business except that they pay you and you can quit whenever you want. It's also a really, really great way to get experience in every aspect of a lot of things.

Whatever you decide to buy spend a year working at the same or a similar business first and learn everything you can from everyone you can.
posted by fshgrl at 8:29 PM on June 8

You don't have $90,000. You have $90,000 less whatever taxes you owe. This is a vitally important distinction to make. If you don't understand how to figure out what taxes you owe on the capital gains you have made in the stock market find an accountant before you even consider starting a business or buying into one.
posted by dfriedman at 8:43 PM on June 8

Starting a business from scratch is still unrealistic, but now I could buy an existing business.

Im not sure what small business you could purchase for 80 or 90k that will give you the upper-middle class lifestyle you seem to have lived and probably want to preserve. Are you prepared to work at a laundrymat 12+ hours a day to make 25-30k annually, manage 3 shifts, learn to repair machines, deal with unruly customers and crime, etc?

The rule of thumb of buying a business is that youre paying for about 3-5 years of profits or are planing to make the investment back in 3-5 years. So lets say you see a one or two man deli that makes 40k annually. The owner probably wont sell for under 150k. If hes willing to take 80 its a little suspicious. Even then youre in a position where you suddenly must run a deli by yourself or pay out half the profits to a partner who is familiar with a deli or at least hire experienced staff, which is another pay cut.

Unless you have some training or familiarity in the field then youre at a big disadvantage. You also really need to accept that fact that a successful business that can be bought for 80k probably wont pull in more than 20k annually.

To be fair, if youre willing to take a big paycut and work in the industry you want to buy into you could be very happy. Its all a tradeoff. "Wage slavery" is pretty cush compared to running your own place.
posted by damn dirty ape at 8:46 PM on June 8

Ask your local Chamber of Commerce if they have any introductory courses for entrepreneurs. Often, government funds these resources (the organization I work for funds these sorts of seminars). Your local Chamber of Commerce should be able to hook you up with a business coach or a mentor, too.

Generally, you should stick with something you're really interested in.

+++++++++++++++++++++++++++++++++++++++++++++++++

The answer to your question is "yes". Read this essay by James Michener whenever you think you can't do it. David Bull's life story on his website is also pretty inspirational. He moved to Japan in his mid-30s to become a woodblock print artisan. His goal was to learn the craft and earn a living selling his work. And he did it.

Time is on your side. If you can dream it, you can do it.
posted by KokuRyu at 10:02 PM on June 8

> Starting a business from scratch is still unrealistic


No, it is not.

Google "PLR," or Private Label Rights.

After that, Google "outsourcing".

Do these two things, spend three minutes thinking about the implications, and I'll feel I've done my good deed for the month.
posted by darth_tedious at 10:12 PM on June 8

Also...

http://marketplace.sitepoint.com/categories/premium-sites-for-sale

posted by darth_tedious at 10:43 PM on June 8

People don't usually sell successful businesses, they hire people to run them instead. A successful business for sale is only being sold because its operator can't hire someone to run it, and can't or doesn't want to run it themselves any more.

If it can't be run by a hireling, why can it be run by you? There are a few possibilities here. If it's a professional activity that requires certification or an apprenticeship or other long training time, such as an electrician, dressmaker, dentist, etc, you might want to consider going through a training period and then buying someone else's tools and business; but this will take time, it is just buying yourself a job, and 3/4 of the way through dental school is not the time to discover that you do not want to be a dentist. (Even so, two weeks after you buy a dental surgery is even worse.)

The business may be location-dependent to the point where if the operator has to move away, the business cannot follow in any way. He/she can use the experience to set up shop again elsewhere, obviously, but most of the customers go there because it's convenient for them to do so. Examples are cafes, service stations, newsagents, etc.

There may be some other reasons that will lead to the sale of a good business, but I think all that are left are change in circumstances of the operator: they may have died, want to retire for health reasons, have suffered other health problems, desire a complete sea change for themselves, have an offer for a job or another business that they will much prefer, or have come into enough money that they don't need to operate the business any more. Or they could have financial problems unrelated to the business that the continued operation of the business cannot ever solve, and need to get a job. (The last is extremely unlikely, because of the inherent contradiction).

So if it's not being sold for one of the above reasons, go very carefully through the financials of it, and watch the business in operation. Make sure to ask if any large-volume customers have recently stopped coming to the business, or if any other changes have made it likely that the business will suddenly drop turnover. Check on the age and condition and warranty of the business's machines, if any. Get in writing an agreement from the operator to hand over full financial details of the business; you will need those.

Make sure it's something where you find the work enjoyable and interesting, where you can think of ways to improve the quality of the work done, the marketing of the products to customers (example: a business that sells a lot of small items at a decent markup, but doesn't have a website, might be a good buy if you can get a website set up and start doing mail orders). The simple fact that you, unlike the present operator, are actually interested in running the business may make a major difference. People get sick of what they do; they master it to the point where they can make a living out of it, then they stop learning, get bored, and don't see the skill in it any more. The grass is always browner where one grazes, no matter how objectively green it may be. Get a business that offers you opportunities to learn and to expand what you can do. Something where you aren't just a replacement for the previous owner, where you bring new skills and interests of your own to the business and will grow it into new markets. You should be able to see several new potential markets for the business before you buy it - niches that you know about that the business can fill, that it presently isn't.

Best of luck!
posted by aeschenkarnos at 12:03 AM on June 9 [2 favorites]

Actually, even if it is being sold for one of those reasons, still go very carefully through the financials of it! :)
posted by aeschenkarnos at 12:03 AM on June 9

Best of luck with this.

I'm currently pretty involved in the day-to-day operations of a small food store started up by two recent (as of three years ago) college graduates who started with zero experience and not much money (I think their start-up costs were something like $40,000). It's definitely do-able, and an incredible amount of fun to be involved with - but it's also financially risky and an exhausting amount of work.

Many above make good points about the things to keep in mind if you're thinking about buying a business. Most businesses looking to sell are doing so because they're having a hard time. Furthermore, if the business is well-established in the neighborhood, all your slip-ups will be magnified (I have in mind a store in the town I grew up in which changed hands to a couple of young guys when the owner died - they made lots of mistakes which might have been forgivable in a brand new business, things like getting the timing wrong on orders so that shelves would be bare here and there, but which doomed them given what people were used to from the place - it closed less than a year after they took it over).

So - my experience biases me - but I'd encourage you toward your original dream of actually starting a business. I've seen it happen, and a person like you can do it, if you're willing to put in the work. (And based on what I've seen, it seems like storefront businesses are probably a lot more work than more conceptual businesses, like events-planning companies or that sort of thing - so if you're more interested in something like that, you're in even better shape!)

A few specific points, whichever track you take:

1: Find a business partner. You might choose one with business experience - that person will be able to guide you through things and teach you a lot. Or you might choose one without much experience but who shares your enthusiasm and your vision for the business - you'll need the energy and enthusiasm of more than one person to get things done, and this kind of person will be there . Either way, another pair of hands or another person's mind and memory will be pretty essential.

2: Talk to people who are already running businesses. They may well be willing to give you advice, both before and after you have a business of your own. They - particularly the ones in the area that you're interested in setting up shop in - will be able to answer your questions much better than AskMeFi can.

3: If you want to go the storefront route, be sure to think carefully about the neighborhood where you want to set up shop. What does this neighborhood need? What niche can you fill? Do you want to live in the neighborhood where you work? What do you want your role in the community to be?
posted by bubukaba at 12:44 AM on June 9

There are suggestions here, but the first thing I'm going to say is do not even MOVE that money for a few years. Seriously, do not touch it. Have it. Just...have it.

First, it's about 3 years of income for a normal entry-level 20-something. It's not a lot. Invest it somewhere safe and let it grow for now. Plus, going by what you say, you have no $k1illz. You won't. know. what. you're. doing. until you get some. I'm discovering this in trying to get a translation company off the ground. It's something I'm looking at doing, and it's not like I don't have the funds, but okay, even if I know how to translate, there are so many processes and other things I won't be able to take on and manage until I get a much larger skill set. Really.

For now, find a direction. Sit on that money and know you've got it, and then go find something you love. THEN think about a business.
posted by saysthis at 4:00 AM on June 9

I own a small business. I'm glad I do, but I kind of slid into it without really thinking ahead. If I was doing it again, and was in your situation, I would go work in an industry I was really, really interested in. Keep my pile of cash growing as a safety net in the back of my mind. When I though I knew everything I could learn there, I'd go start my business. It might take a few tries to find the perfect fit.
posted by Classic Diner at 5:03 AM on June 9

Sounds like you are still working at your current job. That means that you have income, benefits, inertia.

Also, you now have some capital. That means you have the ability to do some exploration of what you'd like to do.

You also apparently have youth, which means you have one of the most important ingredients... abundant time left in your life.

I could write pages on this topic, but instead, I'll cut it short by saying :

Few dreams in this realm are impossible. They vary in difficulty, of course.
Self-employment is not for everyone. Self-management is the hardest part.
Being the boss means you work for your employees.

A great strategy is to follow your passions/interests/hobbies and see if you can figure out a way to monetize them, while you work on your day job. Continue furthering your interests and smarts until you can't afford to work at your day job anymore. Use your current job as training for your next one... (i.e., pay attention to how it OPERATES, how problems are resolved, how assignments are determined, how success is measured, etc.) Don't think you can't learn a lot from where you are. Observe.

Take your time.

Most entrepreneurs have multiple failures before success. I call it 'sighting in a rifle'. You shoot hi, then low, then on target. Don't let a failure stop you, nor a single loss frighten you. Don't take it too seriously.
posted by FauxScot at 5:19 AM on June 9 [2 favorites]

I would suggest flipping houses with the cash you have but ummm this market has gone down hill. I would save the cash and try to find something that people always need. Only way to survive in this economy right now.
posted by Mastercheddaar at 6:44 AM on June 9

Buying a business when you have little experience in the specific domain of the business is pretty common. For example, you may not really like or know much about dental equipment but if you know how to manage people, create efficient business processes and be an good sales person then you could buy and run a dental equipment distributor. In my more pessimistic days, I think that if you can be organized and do what you promise on time, then you will be better than 75% of the small businesses out there.

Also don't forget about owner-financing and training by the current owner. Typically (in Canada) the current owner would finance you for 33% to 50% of the purchase price and would stay with the business for at least 12 months after it is sold to teach you the ropes. Do not buy a business if the owner doesn't even have enough confidence in you to loan you some money and is interested in running for the exit as soon as the ink is dry.

You need to find a bank and your own savings to come up with the rest. So say you borrow $50K from a bank, have $80K to invest, and optimistically get $130K owner-financing, you can buy a $260K business. This price for a business (in Canada) would generally have about 1/3*260 =~87K income to pay the owner each year.

Keep in mind you would have to work MUCH harder than you have as an employee and vacations are not as easy to take when you are the nexus of your small company. Pay close attention as to why the owner is selling (retirement or illness are good; wants to try something new is more suspicious but not a deal killer).

So... get one of the dozens of books from the library about buying a business and make an appointment with a business broker in your area. But go to the meeting with the full knowledge that the business broker is NOT on your side. He/she is on the side of making a deal happen.
posted by FastGorilla at 6:50 AM on June 9

Read The 4-Hour Work Week by Tim Ferris.
posted by firei at 7:08 AM on June 9

If you're in the US, SCORE is a great resource--volunteer counseling from retired businesspeople.
posted by Sidhedevil at 8:45 AM on June 9

>
Read The 4-Hour Work Week by Tim Ferris.

Definitely.
posted by darth_tedious at 9:02 AM on June 9

You've got time on your side. You can gamble it, loose everything and you'll still be a young person with some very valuable experience. Refugees have come out of the horrors of world wars, civil wars and death camps, owning nothing and gone on to build successful lives.

Just something else to consider...

If this "recession" is anything like the last one, when people's unemployment benefits start to run out, they often scrape together the cash to start up a small business (ie.-out of desperation, buy themselves a job). An acquaintance sold a successful business 15 years ago because a lot of people saw the shop doing well and opened up knock-off joints in the immediate area. The local customer base was suddenly split with 7 new places, each undercutting the other on price.

(also, never spend a ton of cash fixing up a rented space. Find creative ways to make it nice. Remember, you have to sell a lot of widgets to make back your investment and rent)

(also, everything FauxScot said above)
posted by bonobothegreat at 11:04 AM on June 9