Three Myths About Buying a Business

There are several reasons why people choose to purchase an existing business instead of building one from scratch: you will be free from the responsibilities of building a customer base, investing initial capital for marketing, and establishing a steady net of positive cash flow. All of these aspects are already mature in a purchased business.

Why Buying a Business Is A Better Choice for Investment Diversification

• You don't need to reinvent the wheel. When purchasing an existing business, there are pre-existing processes, systems, and policies that can be leveraged with your new vision for the business.
• Easier bank financing. Whether you need to secure a loan via a traditional bank or a hard money loan from independent investors, a pre-existing business will be able to secure a financing loan much more readily, since it will already have the financial clout and recognition to allow investors to comfortably invest.
• You're not just buying a business – you're acquiring a proven concept.
• Steady, positive cash flow. Absorbing a new business will allow you to absorb the sale structure, cover debt services, and cut a reasonable salary, while still having leftover capital to further the business' reach.

TOP TIPS TO PREPARE FOR BUYING A BUSINESS

While a viable way to diversify your investment and portfolio, purchasing a business tends to be inundated with myths and half-truths. Here are some of the three most common myths about buying a business, and how believing them can compromise lucrative prospects.

Three Myths about Buying a Business

1. "I can never afford it – ever!"

You can very much afford a business or a franchise – especially if you're willing to take a personal pay cut. For example, a positive cash flow is what you will be using to pay off any bank notes you utilized to secure a business. For example, if a business has a cash flow of $150,000 and you buy it for $300,000, with $100,000 down, then that means you have a bank note for $200,000 – let's say that the note is a two-year loan with no interest from the seller.

That means you'll be paying out about $100,000 a year over the span of two years. By taking a personal pay cut to ensure the long-term longevity of the business, you can easily get by. You will find that many businesses could actually be affordable – as long as you downsize, reel in incredulous spending, and make smart personal and business decisions.

2. "It's too much of a risk."

There are three points of consideration when it comes to evaluating the risk factors of purchasing a new business:

1. Dig deep into the business' financial statements and make sure there is a moderate to low risk when accessing stocks, shares, and index funds.
2. Confirm there isn't any spread betting and that the financial statements are made from reliable bonds and certificates of deposits.
3. Confirm that there isn't encroaching competition.

3. "It's too much work."

You aren't the first person to purchase a pre-existing business or franchise – many tools for streamlining the process exist. One of the best tools that you can invest in is a financial advisor. They will be able to ensure that the business you invest in will ensure positive gains, as well as help verify any information presented by the seller.

When it comes to the day-to-day tasks of running a business, the already pre-existing workers can help streamline peripherals. It's not that it takes too much work – it's that you think you have to move through the process alone, you don't.