Why Buy An Existing Business?

By Casey Grimes, Senior Intermediary
Confidential Business Intermediaries/The CBI+Team

After  several years as a full time, professional business intermediary I have come across a lot of business “buyers.” As a matter of fact, we have over 7,000 business “buyers” in our database with whom we have worked.These  “buyers” are contactedwhen  we take a business to market. We save their contact information because they have taken and action that indicates they really are Buyers and not just suspects. Because we have worked with so many Bbuyers, a lot of people ask me what the most important things are that buyers look for in a business. After sorting through the many great reasons to buy an existing business, I find the top three reasons to be the following:

1) Proven Income. Buyers want a business that can produce enough earnings for themselves to make a living out of and to pay off the note on any financed portion of the business. What a seller puts in their pocket after paying off all of their expenses is called their Seller’s Discretionary Earnings (SDE). $100,000, or more in yearly SDE is the magic number for most business buyers because they can make a good living out of the business and have enough left over to service thedebt. Proving to a buyer what the SDE is in a business is one of the most important qualifications when a business is marketed.. This is why it is so important to keep good financial records all of the time within a business.

2) Established name and customer base. Buyers of pre-existing businesses love the fact that good businesses are established and most of the hard work of creating a name and good reputation are already done for them. They also have the pre-existing customer base already there for them when they purchase the business instead of having to create it from scratch themselves. Considering the vast majority of start-up businesses fail within the first year, this is very attractive to buyers of businesses that have been around for a while and proven that they work well. From Day One, a buyer can step into a successful existing business and make money. They also don’t have the risk associated with a start-up.

3) Expert Training. Business sellers can expect to train a new buyer for a limited amount of time generally as part of the purchase price. This enables the buyer to get the very best training available to them because the business owner is the business expert and can teach them how to be an expert in the business too. This enables the buyer to carry on the legacy of a business, make money and most likely take care of the already existing staff. Business buyers really like having the seller there to help them get started as well as having a staff already in place to support them as they build the business for their future.

Remember that most business buyers in the marketplace today are trying to buy themselves a job. If you own a business that you are thinking about selling in the future, the above criteria will greatly help you and make it much easier for us to help find you a buyer.