Posted 01-02-2015 9:18 am by
Buying a business is one of the best ways to skip over the high failure rate of startup businesses, and enjoy a steady stream of customers and cash flow from day one. If you are considering buying a business in 2015, here are some suggested goals that will help you make a successful purchase.
Goal #1: Take a personal financial inventory. Before you buy a business, it is important to know where you are financially right now, and where you want to end up. Do you know exactly how much you make each month? Do you know exactly how much you spend each month, and on what categories? What is the current value of your assets? What about your liabilities? One of the most illuminating endeavors you can undertake is to enter your personal finances into an accounting software such as QuickBooks. Once you have a set of income statement and balance sheet for your personal finances, you can decide how you want it to be different by the end of 2015. The amount of liquid assets you have will affect what size business you can afford, and the amount you want to increase your income by will help you narrow the industry and cash flow requirements of the business you are looking to purchase.
Goal #2: Get educated on the business sales market. One of the best ways to become educated on the business sales market is to meet with a local business broker. Preferably, you want to find a broker who has purchased a business himself or herself, so the broker can give you a first-hand account of what it is like to buy a business. While you may find yourself drawn to a particular type of business due to your hobbies or interests, there might be other industries or niche businesses you haven’t thought of that fit your financial goals better. It is important to know whether you are looking to buy a business, or buy a job. Some people prefer to be hands-on owner operators, while others like to be absentee owners and simply enjoy the cash flow. Meet with your local business broker to make sure your expectations are in check with reality.
Goal #3: Be proactive with your tax strategy. Do you have a reactive CPA who simply does your tax returns once a year, or do you have a proactive CPA who helps you develop a tax strategy for the next 3 to 5 years and gives you a step-by-step action plan to help you lower your taxes? When you become a business owner, there are many tax planning strategies that become available to you. Which entity structure should you choose? Which State should you form your entities in? If you have partners, how should you structure your partnership? It is time for you to meet with a proactive CPA who can help you develop a personalized strategy to lower your taxes, and discuss how your upcoming business purchase fits into your overall tax strategy.
Goal #4: Get serious with your asset protection. Like it or not, business owners tend to get sued. If you are planning to buy a business in 2015, be sure to meet with a good asset protection attorney to discuss how you can limit your liability. There are many specialties in the field of law just as there are many specialties in the field of medicine. To come up with an asset protection strategy, you want to find an attorney who specializes in asset protection. More importantly, you want your advisors to talk with each other and collaborate. For instance, your CPA might suggest forming an S-corporation for your business to minimize self-employment tax, while your asset protection attorney might suggest forming a Wyoming or Nevada LLC taxed as an S-corporation rather than an S-corporation directly to provide better protection against outside liability.
Goal #5: Make yourself ready for the right opportunity. A successful business buyer has a team of advisors ready to spring into action when the right opportunity arises. Start assembling your team now. Have your lending contacts lined up and get pre-qualified if possible. Introduce yourself to your local business broker who can put you on his or her contact list and alert you to good deals. Get your tax strategy and asset protection strategy in place so you have a solid foundation to build from. Pick out your insurance agent who can advise you on the insurance you need. Hire a business consultant who can teach you industry-specific metrics to look for when you are looking to buy a business in a specific industry. Take a personality assessment so you pick a business to buy that suits your personality preferences. Set your cash flow and net worth goals so you know how you want your personal financial statement to look like in one year, three years, and five years.
There is a saying that when the student is ready, the teacher will appear. The same is true for buying a business. When the business buyer is ready, the right opportunity will appear.
Aaron Muller is a business broker who specializes in selling small businesses with revenues of $5 million and under in Washington State. He has sold over 120 companies and facilitated over 40 SBA loans for his clients. Aaron can provide referrals to advisors who specialize in helping small business buyers and sellers succeed. Contact Aaron at (425) 766-3940 to inquire about selling or buying a business.