How Come People Don’t Start?

RE: [spiers] How Come People Don’t Start?

Somehow I missed your initial request for info - but here's another
thought. Most of the reasons people do not start business have been well
articulated by others and they are very valid. However, another approach
is to buy existing businesses. I think there is a huge opportunity with
the aging Baby Boomers who have successful business of all sizes and types
and are ready to retire and get out of it. They have already followed your
pattern of (1) get the orders, (2) find the best agents, sales reps and
suppliers and (3) run the mechanics of the business (paraphrased
obviously). So you are essentially buying their expertise and legwork,
probably along with inventories. The problem is that business advisors and
brokers (and sometimes the owners) have ridiculously high expectations
about the "value" of these companies, thus they are priced at levels where
it is not feasible for someone to buy them and make a go of it for many
years with the high initial costs. They then just have to liquidate the
business as there are no buyers and they get nothing out of it. I think a
happy medium is to pay them a "goodwill" fee but keep it low enough so the
business is still profitable. This is NOT going to be 2-3 times net
earnings, 1-2 times gross or any of the other crazy pricing mechanisms the
brokers advise. These formulas don't account for the fact that businesses
have different margins and expense ratios, and usually don't have long term
sales contracts or a predictable revenue stream. Obviously the right
number will vary according to the business, so I am not suggesting any
magical formula either, but something that the buyer can basically earn
back within a reasonable period of time (definitely less than a year.)
It's not necessarily easy to find these businesses, but we are always
keeping an eye out for something that we are interested in and establishing
a relationship. Even if the people don't want to sell now, they may in a
year or 2 or 3. My husband and I have bought 2 businesses in 2 years so
far and are looking for more.

Merry Kindred
mbkindred@earthlink.net

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