Buying A Business 101

by Dave Driscoll

Where Do You Start?  Read On To Find Out

Most people have no experience in buying a business and don’t really know where to start when considering a purchase. The top three must-haves in investigating any purchase of a business are passion, cash flow and lifestyle.

Passion – for the product, service or concept. I call it the energy! Have you ever been in a job you didn’t really like yet you stuck with it simply because of the security of having a job and paycheck? Well, owning your own business provides no security and no paycheck, so you better have a strong, sustainable passion for what you are doing.

You need significant passion to fuel the drive to get you through the difficult times you will face as a business owner and operator. A major contributing factor to business failures is that when the going gets tough, folks tend to look outside themselves for blame for the problems. Personal passion, or the drive to dig in and work through issues, is what will separate out the winners. Passion provides the energy to make the challenging discoveries and decisions that will lead to success.

Cash flow is the baseline used to determine value during the process of buying a business. Cash flow is also a good indicator of the market appeal of the product, service or concept. Without cash flow, you don’t really have a business. During evaluation of an acquisition, historical cash flow is the diary of the business’s performance. Analyzing and properly interpreting a company’s historical cash flow provides you, the potential buyer, with the information necessary to weigh opportunities and risks and make informed decisions.

Lifestyle. Realistically identify your lifestyle needs before looking for a business and use those parameters to keep you in check with the financial risks of business ownership. Any miscalculations in your ability to help the business succeed will affect your lifestyle.

Consider the amount of time and attention the business will require and compare that with your family’s priorities. Make sure you discuss these expectations with the significant others in your life – business ownership requires a commitment and sacrifices from the entire family. That said, don’t forget to consider how your own emotional needs will fare in relation to the business demands.

Next, will the business provide enough cash flow for you to meet your family’s financial objectives? More specifically:
1. If you need to borrow funds to purchase the business, does the business provide enough cash flow for the orderly liquidation of your borrowings?
2. After all business expenses plus the amount due to creditors and lenders are paid, is there enough cash flow left over to support your lifestyle?

These are essential considerations in determining whether to buy a particular business. Owning a business is a risk because all the business performance results directly impact the owner’s lifestyle. If the business performs well, the owner’s lifestyle will improve, but if the business doesn’t perform … you know who will feel the pain.

Dave Driscoll is president of Metro Business Advisors, a mergers and acquisitions, valuation, and exit/succession planning firm helping owners of companies with revenue up to $20 million sell their most valuable asset. Reach Dave at DDriscoll@MetroBusinessAdvisors.com or 314-303-5600. For more information, visit www.MetroBusinessAdvisors.com.