Author Topic: Buying an Existing Business  (Read 1870 times)

Neo

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Buying an Existing Business
« on: March 18, 2019, 02:40:27 PM »
Has anyone purchased an existing business before? I've come to the realization that I won't ever be happy working for someone else. I have a good job in banking, but I'm sick of the nonsense, layoffs, politics, BS, etc. I just can't bring myself to even feign interest in my job anymore and I need to do something different. I own 22 units of rental real estate and, odd as it may sound, I'm much happier wrenching on a broken toilet than wearing a suit in a boardroom. I believe the correlation is that I can be excited about anything (even fixing a toilet) as long as I'm doing it for something that's mine.

My wife is part time and I'm definitely the primary breadwinner. Lately I've been keeping an eye on the local business broker website to see what businesses are for sale. I don't really have the ability to start my own company b/c I need to keep the income rolling in, so I thought it might be a better idea to buy an existing business. I would likely apply for an SBA loan or something similar for the purchase.

Has anyone ever done this? Any advice? Part of me thinks, if the business was any good they wouldn't be selling, but I'm interested in learning more from anyone who has been down this road.

For further context, I like the idea of manual labor/service type businesses b/c I don't see them as being easily disrupted by technology. HVAC, plumbing, electrical, roofing, etc. There is one I'm interested in now that's a fence installation company. 40 years in business. Cost is $400k. Owner earnings are $210k. That's just one example.

Looking forward to hearing your thoughts/experience with buying an existing business!

HBFIRE

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Re: Buying an Existing Business
« Reply #1 on: March 18, 2019, 02:58:55 PM »
As an extremely successful business owner, I'd never purchase another business that I didn't fully understand first on a deep level.  That is, I'd want to be fully immersed as a worker in that business first, or at least have a partner that is before even considering becoming a business owner in that industry (sometimes that can work -- one partner is an expert on the specifics of the business, and another partner provides some of the start up capital).  Owning a business requires a complete understanding of the operation and nuances, and I don't think that can be done otherwise.   Now perhaps you want to just invest in something and let other people run it.  No personal experience with that, that would be more of a venture capitalist type of skillset.

Just my $0.02 and why I think so many businesses fail.
« Last Edit: March 18, 2019, 03:09:44 PM by HBFIRE »

OrchardTree

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Re: Buying an Existing Business
« Reply #2 on: March 18, 2019, 03:27:17 PM »
What do you do at the bank?

I own a service business that's not too different from what you are describing.

If you are buying something that's $400k and 40 years in business you are effectively buying someone's job. At that revenue level it's an individual who might have one or a few helpers but is still doing the majority of the work themselves have spend 0 time on trying to scale the business or add to marketing. Personally, I have always felt that transitioning a business like that will be very difficult.

You're thinking to buy that because it would give you cash flow from day 1. The reality is that any business where you do the majority of the work will generate cash from day 1.

If you go in your neighborhood and pass out flyers that you print for $0.05 each and then wash people's windows you will make $100-150 for each hour of work that you gain. Since you will be doing all of the work your cost will be very low i.e. gas and insurance, and you will have cash from day 1. Since now all of your time is focused on finding more jobs you will immediately learn how to win more work i.e how to do marketing.

Since you have no employees it will also work quite well in conjunction with your landlording business.

OrchardTree

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Re: Buying an Existing Business
« Reply #3 on: March 18, 2019, 03:29:47 PM »
forgot to mention. Love your blog.

Neo

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Re: Buying an Existing Business
« Reply #4 on: March 18, 2019, 04:34:39 PM »
Thanks so much for the blog comment! I am extremely tardy on making the next post but you have inspired me to get after it.

At the Bank I do strategic sourcing/vendor management. So im dealing with 3rd party suppliers, contracts, performance management, etc.

I appreciate all the insight so far. Please keep the advice coming!

AnnaGrowsAMustache

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Re: Buying an Existing Business
« Reply #5 on: March 18, 2019, 06:32:26 PM »
I am just now considering this, after another FU to my latest employer. I'm just over being employed. The business I have my eye on is one I'm very familiar with and I can see a dozen ways of increasing turnover. It's also something that I could use to increase turnover in my sidehustle. If I can get it at the right price, this may be perfect. If not, well I guess I just take a short term job and pour waaaaay more energy into the sidehustle. We shall see.

2wiresdave

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Re: Buying an Existing Business
« Reply #6 on: March 18, 2019, 06:55:32 PM »
I just sold my business. It was making me an average of 215k annually.

I sold simply because I was bored from doing it long enough that it was no longer exciting. Unfortunately it still required enough attention that I was working pretty hard. Boredom and hard work at the same time leads to feeling trapped and unfulfilled which over time sucked energy out of me.

I now have a pretty nice chunk of cash (sold the real estate as well). Not sure what the next "thing" will be. Would like to own another business but its a mental and physical drain and I might be happy working for someone else and they can worry about the small stuff. I could probably retire if buckled down but I don't mind doing things for money, now I just don't really need it to survive. Hoping to take a year or two to find something that excites me.

The idea of window washing or something very simple like that is really intriguing and the hourly income from some of these types of very easy to get going businesses can be pretty good. Window washing, dog waste removal etc.

Should you buy an existing business was the original question and no is my answer. You could start a lot of businesses for far less than 400k and you get to build and know that business from day one. Is buying a business a bad deal? That depends, but a previous poster noted that you should really spend some time in the business or you really don't know what you are getting. Every business is its own very unique little world and that in my opinion is critical to understanding what you are buying. You cannot learn that from a few years financial statements.

wageslave23

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Re: Buying an Existing Business
« Reply #7 on: March 18, 2019, 07:26:19 PM »
If you own 22 rental units then quit humble bragging, cut your expenses and live off of them.  Haha, only half joking.  But I am curious about people's experiences buying a business they don't know much about.  With CPA firms, I know that client retention is very hard after a transition.

ender

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Re: Buying an Existing Business
« Reply #8 on: March 19, 2019, 06:28:08 AM »
If you own 22 rental units then quit humble bragging, cut your expenses and live off of them.  Haha, only half joking.

I was going to say something very similar.

OP basically has an existing business. Presumably these rentals bring in decent cash flow so... I'm missing why they don't just work for that business.

Neo

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Re: Buying an Existing Business
« Reply #9 on: March 19, 2019, 07:11:22 AM »
22 units is certainly not enough to live on with three young kids while also keeping enough cash reserves on hand for capex, maintenance, and future acquisitions. If I stopped working now my rental portfolio growth would basically stall. I do hope to one day live off rentals completely but I'm not there yet.

 

Wow, a phone plan for fifteen bucks!