Unlocking The Door To Success Take a shortcut to start-up by buying a turnkey business.

Getting Into Business for yourself doesn't necessarilyrequire building a company from scratch. If the thought ofnavigating your way through the start-up process is holding youback, consider taking the entrepreneurial plunge a different way:Buy an existing business.

This alternative route to business ownership has some advantagesworth considering. It allows you to bypass all the steps involvedin creating a business infrastructure, because the original ownerhas already done that. You can take over an operation that'salready generating cash flow and perhaps even profits. You'llhave a history on which to build your forecasts, and a future thatincludes an established customer base. And there's generallyless risk involved in buying an up-and-running operation than thereis in creating a whole new company.

"When you buy a business, you're buying something youcan touch, see, examine and evaluate," says David H. Troob,chairman of The Geneva Companies, a nationalmergers-and-acquisitions services firm in Irvine, California.

You're also buying something that's already producing aproduct or service, which is what motivated Roland Reems and MikeNofsinger, co-owners of Moran Printing Co. in Orlando, Florida, tobuy their company in 1978. The two had spent most of their workingcareers in the printing industry, so it made sense for them to buya printing business. And with their industry connections, they hadorders that needed to be filled right away.

Due to the equipment-intensive nature of the business, Reemsestimates it could have taken as long as a year just to do thesetup necessary to start a full-service printing company fromscratch. Taking that time would have put them at a seriouscompetitive disadvantage. "We needed to be immediate producersand providers, without losing momentum," Reems says. "Wedidn't need to remove ourselves from the marketplace for thetime it would take to order presses and start a printing businessfrom scratch."

Of course, there are drawbacks to buying a business. Though theactual dollar amounts involved depend on the size and type ofbusiness, it often takes more cash to buy an existing business thanto start one yourself. When you buy a company's assets,you'll usually get stuck with at least some of its liabilities,too. Even so, you just might find the business you want iscurrently owned by someone else.

Why do people sell businesses--especially profitable ones? For avariety of reasons. Many entrepreneurs are happiest during thestart-up and early growth stages of a company; once the business isrunning smoothly, they get bored and begin looking for somethingnew. Other business owners may grow tired of the responsibility, ormay be facing health problems or other personal issues thatmotivate them to sell their companies. In fact, some of the mostsuccessful entrepreneurs go into business with a solid plan for howthey're going to get out when the time comes.

It's a good idea to at least consider buying a business aspart of your early planning--especially if the appeal of being inbusiness for yourself is in running the company rather thanstarting it.

Jacquelyn Lynn is a freelance business writer who hasspecialized in marketing and management issues for more than adecade.

Where to Look

The best place to look for a business is within an industry youknow and understand. Buying a business is a serious commitment; besure you choose one you'll be happy running. You should have asolid familiarity with and some experience in the generalindustry.

Your next consideration is geography. The business should be inan area that meets your personal lifestyle and businessrequirements. Make sure there's an adequate labor pool and thatthe costs of living and of doing business are acceptable toyou.

Look at every business in the area that meets your requirements;just because it isn't on the market doesn't mean itisn't for sale. Use your networking skills to find potentialcompanies; let friends and colleagues know what you're lookingfor. Reems and Nofsinger ran a "Wanted to Buy" classifiedad that described their requirements; a response from the owner ofa family-run printing company who was nearing retirement ageresulted in a successful sale.

Evaluating a Business

One of the most challenging financial calculations isdetermining what a business is worth. Research the selling priceand terms of recently-sold companies in the industry, and use themas a guide. Or you may value the company based on its after-taxcash flow or on the value of the company's assets, if they wereto be liquidated, minus its debts and liabilities. Call on yourfinancial advisors to assist you with these calculations.

The figures are only part of the equation. The company'sreputation and the strength of the relationship the current ownerhas with customers, suppliers and employees are not so easy tomeasure.

Doing your homework is an essential part of the acquisitionprocess. It's called "due diligence," and it includesreviewing, auditing and verifying all the relevant informationabout the business. Thoroughness at this stage means you'llknow exactly what you are buying, and from whom.

Part of due diligence is checking out the seller's claimsabout the business's volume and its standing in the community.Contact customers and vendors to verify their relationships withthe company. Check with the Better Business Bureau, as well as theappropriate trade organizations, licensing agencies andcredit-reporting agencies. Ask your accountant for assistance inreading financial statements. Checking with your banker during thedue-diligence process can help you learn if the financing you needwill be available. And, of course, have your attorney review yoursales contracts and related documents before signing.

Even as you gather and consider input from your advisors,remember that you're the buyer and the final decision-maker."The responsibility and control of a deal are all yours,"Reems says. "Once the deal is made, the responsibility for itssuccess is going to be yours."

Negotiating Tips

Once you've found a business you're interested in,don't be the first person to mention price. Let the seller namethe first figure, and negotiate from there. If there's a brokerinvolved, remember that brokers are the seller's agents, andthey make their money from the commission the seller pays. Thoughit may not be necessary, consider hiring someone skilled inbusiness acquisitions to represent your interests.

Settling on a price is only the first step in negotiating thesale. Troob points out that the structure of the deal is moreimportant than the actual price. He suggests being prepared to paybetween 30 percent and 50 percent of the price in cash, andfinancing the remaining amount. You may finance through atraditional lender, or the seller may be willing to "hold anote"--which means he functions as a lender would, acceptingpayments over a specified period of time. This assurance of futureincome appeals to many sellers.

Many sellers are open to other terms, such as accepting benefitslike a company car or insurance, for a period of time after thesale is completed. Though such agreements may reduce the upfrontcash you'll need, Troob advises approaching them with caution.Have your attorney study the details for legality and liability."You don't want to promise to do something that'sgoing to cause you problems later on," Troob says. "Youwant to be sure your time is spent running the business and notcorrecting a mistake you made in the acquisition."

Reems advises including a noncompete clause in your terms ofsale; your new business won't be worth much if the seller opensa competing operation down the street a few weeks after you takeover his old company.

Finally, remember you can walk away from the deal at any pointin the negotiation process before a contract is signed. "Ifyou don't like the business, or if you don't like the deal,you don't buy," Troob says. "Just because you spent amonth looking at something doesn't mean you have to buy it. Youhave no obligation."

Managing the Transition

Let the seller know what your plans are for the business. Heprobably has an emotional investment in the business as well as afinancial one, and will be more comfortable and supportive of theentire process if he feels good about what's going to happen tothe company after he leaves. "Before and after you close thedeal, spend some time selling your concept to the principals of thecompany, their key employees, their customers and suppliers,"Reems says. "Plan for the future together with all thesepeople, get them involved with you and reassure them as to whatyou're doing. Don't make it a secret unless you absolutelyhave to."

Though you should certainly negotiate for the best price, bewilling to pay a fair price. A seller who feels good about theprice and terms will make a much more positive contribution to thetransition than one who feels ripped off.

No seller can guarantee specific customers or even valuableemployees will stay with the new owner, but there are things youcan do to ensure a smoother transition. Most sellers participate ina transition period that typically ranges from six months to twoyears. During this time, the new owner is introduced to customersand vendors and becomes familiar with all the details of theoperation. Take advantage of this time to reassure employees theirjobs are secure.

It's critical, Reems says, to communicate clearly andregularly with everyone involved in the company. "Let peopleget to know you," Reems says. "You'll get to knowthem in that process. Keep your door and your ears open. Don'tlet people see you as a threat. Use good sense in place of muscle.Come in as somebody who's going to be really good for theentire organization."

Though you want to do it with tact and grace, once you'vetaken over the reins, make the company yours. You'll want tomake changes, try new things and grow the business--and it'sreasonable to expect that not everyone will agree with what youdo.

"Don't spend too much time with disgruntled oruncooperative people," Reems says. Realize that you may lose afew customers, or that some employees may leave. But apply your ownvision and put your own plan in place as soon as possible--becauseeven though the company may not have originally been your idea, andeven though you didn't nurture it through the start-up process,it's yours now.

Contact Sources

The Geneva Companies, 5 Park Plaza, Irvine, CA 92614, (714)756-2200

Moran Printing Co., P.O. Box 592068, Orlando, FL 32859-2068