Starting your own business is never easy, but what if you could take over an existing business?
Channelling your entrepreneurial ambitions into running a franchise or other operating business is a viable option that carries different challenges and different rewards compared to starting a personal business from scratch.
Pamela Greiner-Labelle, president of The Business Exchange magazine, says buying an existing business can be an intelligent way to skip some the hardest parts of the startup process and invest in a proven model that is already making money.
“Buying an existing business or franchise increases the chance of success. An existing business will hopefully have the bugs worked out and a profitable financial model established. With a franchise, you buy the rights to a proven, easy-to-follow marketing, operating, and financing model,” she said.
With crucial business elements like location, supply chain, revenue stream and product research already tackled by the former owner or franchise corporation, taking over a business lets you hit the ground running several steps ahead of a built-from-scratch business.
That said, no business is a sure bet and risks still exist. The worst risks, Greiner-Labelle says, are the ones you take for the wrong reasons, such as emotion or sentimentality.
“Entrepreneurs, by their nature, enjoy taking risks. Often they go with their gut feelings over logic and end up purchasing a business destined to fail,” Greiner-Labelle said.
To avoid emotional pitfalls, you’ve got to crunch the numbers and put together your own acquisition team to help you gauge just how successful a potential business is likely to be.
While the cost of a lawyer, accountant, franchise consultant or financier grows with the size and complexity of the deal, the money you potentially save by finding a better deal or avoiding buying a bad business is usually worth it. Don’t skimp on doing your homework and remember that finding a successful franchise takes time and effort.
“Like finding a job, finding the right business is work,” says Greiner-Labelle.
John Woodburn, a franchise consultant with Woodburn & Associates, says first-time buyers should definitely consider hiring a business or franchise consultant because shifting from working for a business to owning one is a huge step.
“If you’ve been an employee all your life, becoming self-employed is a big step,” Woodburn says.
He recommends interviewing franchisees as part of your selection process.
“Are they making money? Are they getting support from the franchisor? And would they do it again?
“If you get three ‘yeses’ the prospect looks positive,” Woodburn said.
For a powerful aid to your search, head online to BusinessExchange.ca, where you’ll find search tools, independent research and listings of existing businesses as well as professional advice on finding the right business. You can also pick up The Business Exchange magazine at many retail locations across Canada.
When picking a business, be thorough and don’t be afraid to ask the toughest question of all:
Why is the business being sold?
Lisa Topps, a chartered accountant with accounting firm Evans Martin, which specializes in small and medium-sized businesses, says an accountant can be crucial in determining how financially viable a business is based on past and future projections. He or she can also go beyond the balance sheet to check for outstanding debts such as notes payable, accounts payable and real estate and equipment fees.
“A business seller will open the books and show purchase orders — it’s what they don’t show you that can kill your business,” Topps said.
Ultimately, buying a business requires a high level of commitment and planning, but the rewards are definitely there.
“The freedom and independence that a profitable business will bring is well worth the effort,” Greiner-Labelle said.
To learn from business experts and explore thousands of business and franchise opportunities under one roof, go to the Business, Franchise and Investment Expo Saturday and Sunday from 11 a.m.–5 p.m. at the Toronto Congress Centre. For details, visit BusinessExchange.ca.
