Starting Your Own Business vs Buying

Every business aims for income and profit and more individuals are willing to engage commerce. But the big question is whether or not to “start a business” or “buy an existing one”.

Before deciding on what strategy to choose, let us first review the positives and negatives associated with both

Starting a business from nothing

Establishing a new business is basically the creation of it starting from scratch. Initiating one involves serious work. It requires an idea for the creation of a unique product or services, a business and marketing plan that will be easily accepted by the market and long hours of research are needed to come up with an original business concept.

Many people fear that when they start their business it will not prosper, or more plainly they fear failure.

It involves a number of risks compared to buying one. Further, studies show that many new businesses fail within the first three years.

Starting a business can be difficult and time consuming; you don’t really know who your target customers are, how many employees you will need; you don’t even have an idea whether or not the business will be successful.

Business buying

Purchasing an existing business is quite costly compared to starting one. Despite the cost, many entrepreneurs consider purchasing an existing business as a less risky option than starting one. It can save you a lot of time and energy and is known to have a lesser risk of failure. Buying has grown in popularity for most entrepreneurs and it is said to be easier since all the complex work has already been done for you.

To help you choose, here are some of the advantages and disadvantages of each strategy:

Starting a business of your own

Disadvantages

1. You need to do everything by yourself including creation of a business plan, business name, promotion and advertising.

2. Attracting customers may take more time since there are no established customers yet.

3. Months and even years of insufficient income and slow sales.

4. Financing can also be difficult since most lenders prefer to provide loans to already established businesses.

Advantages

5. Autonomy – You have the independence to make your own decisions.

6. Develop creativity – You will have the freedom to be innovative and creative.

Buying an existing business

     Advantages

1. Established solid customer relationship
2. Verified business methods and concepts
3. Qualified and trained employees
4. Proven cash flow
5. Established supplier relationship
6. Established infrastructure
7. Goodwill included with the business
8. Lenders are willing to finance a loan to an existing business

Disadvantages

1. Staffing problems – new owner versus existing owner can breed distrust
2. Customers loyalty to former owner
3. Goodwill acquisition may be too expensive
4. Obsolete and defective plant and equipment
5. Previous owner may become a competitor by putting up another same type of business. This can be addressed with a non-compete clause in the sales contract.

As you can see the advantages of buying an existing business prevail over its disadvantages.  Compare this to starting your own business where the detriments outweigh the benefits. Still it’s up to you to choose the right strategy that you think is best in your case.

Negotiations and Doing your Homework

Negotiations and Doing your Homework

Negotiating can be tough and practically every aspect of our business and personal life involves negotiation. This is not something that we are all born with.

We use these skills virtually every day of our life and the good thing about these is that these skills can be learned. We all have that convincing and persuading power; we just have to learn how to develop these practical skills.

What is negotiation?

Negotiation is basically an art. It encompasses persuasion and convincing to get what you want. It is an interactive communication between two individuals both benefiting from each other insuring that each of the parties get what they want

How to negotiate?

Here are some guidelines when conducting negotiations…

- Be specific. Have a clear description of what you want to achieve from the dealing. It must be something practical and achievable.

- Know who you are dealing with. Since negotiation is a two way process, you must learn about the other person. Obtain information regarding the person, product or service you will be dealing with.

- Establish rapport with the other side. You must know in advance whether or not the other party is willing to cooperate, because if not, then the whole negotiation will just be a waste of time.

- Do not let your emotions get the best of you. You must maintain your composure and keep it professional. Be objective and stay focused on the real purpose of the dealings.

- Be firm. Do not allow the other person to see your desperation to close the deal. If this is so, they will tend to use this against you.

- Never make false promises. In the course of the negotiation process, do not make any promises that you cannot or do not intend to perform, in doing so, you will lose your credibility.

Essential elements in negotiation

- Attitude

Your attitude towards the negotiation is very important in closing the deal. You must be firm and stay positive. The common mistake by most neophytes in this field is that they easily give up.

- Compromise

There should always be a compromise between two parties in order to have a win-win situation. Compromise addresses the core concerns.

- Communication

Without communication there can be no negotiation. This is just one of the basic elements that are essential in the negotiation process. Establishing rapport is a good way to strengthen the communication course. One must be able to converse to the other party what he or she really wants.

- Listen

You must also learn to listen and know the other side’s concerns. Listening actively to what the other party would like to convey and acknowledging them will let them know that you are serious about the deal.

Strategic negotiation plan

It is a must for you to develop a negotiation plan, with key strategies to be employed in each phase of the process. Strategies must be flexible to accommodate changes in the course of the dealing. A good negotiation plan must answer these basic questions.

• What do you want to achieve?
• Where should you start?
• When to make your move?
• How will you close the deal?

Basic phases of negotiation process

- Pre-bargaining phase – This is where all the planning and gathering of information takes place. It encompasses information gathering, leverage evaluation, issue analysis, rapport building, establishment of goals and expectations and formulation of negotiation plan.

- Bargaining phase – This is where the real negotiation takes place. Negotiation skills and strategies are employed here. Tactics are used to get the other side to conform to your offer.

- Closure phase- Closing the deal. Do not try to rush or delay the closing.

Do your homework; do your part.  Negotiation entails much preparation and research on your part. Go over the different phases of the process, essential elements involved in it and try to develop the skills needed.

Planning and preparation are just basic elements but are very significant in the negotiation process. Do your part by mastering the skills needed in this field. You won’t go wrong if you follow and understand what has been mentioned above. Do your part and do it now!

Business Buying | About the Buying Process

Business Buying | About the Buying Process

Buying a business is a tedious process and also involves serious research on the buyer’s part. It is a huge decision for a buyer to make for it entails a huge amount of money at risk.

The process of acquisition is quite complicated for most of us and we do not understand some of the process involved. So if you are new in this field, you might want to tap a broker to help you out. However, you must remember that most brokers are hired by sellers to work for them so be careful in choosing one.

What does a broker do?

A business broker typically acts as the middle man between the seller and buyer. They help in the transfer of ownership from seller to buyer. The broker’s main role is to guide buyers by giving out all essential information needed in the purchase of the business.

They can assist buyers in many ways including:

• Information – they can help in providing research and information for the buyer that is essential for a decision.
• Lay out facts – presentation of relevant facts about the business.
• Bridge of communication/negotiation – they are the passage of information between the seller and buyer, facilitating in the communication and negotiation process.
• Identify your interest – By determining what your interests are, brokers can help you to decide on what kind of business will suit you.
• Aid in handling paperwork – As you know, the buying process is a complicated process which involves a great deal of paperwork. Brokers assist you on the policies and laws governing the purchase.

The purchase process involves the following:

• Know what your investment objectives are
• Business valuing
• Seeking right opportunities
• Thorough examination of the business before acquisition
• Supervising and negotiating the purchase
• And closing the contract

Steps in the buying process with involvement of a business broker:

1. Meeting between buyer and broker wherein broker assists in deciding on what type of business.

2. Confidential information will be kept in private by buyer in order to protect seller’s interests.

3. Detailed facts are presented by the broker to the buyer.

4. When a buyer has chosen a number of businesses to select, he or she then visits the premises of each business with the broker.

5. Buyer now decides and selects the business to be acquired.

6. A Purchase Offer in writing will be made by the buyer with the assistance of the business broker. A Purchase offer would include the following:

- Statement of intention to buy
- Amount of money to be paid and payment terms
- Inclusion of a non-compete clause, which prohibits opening a competing business near the premises at a given period.
- Request for information and documentation of the business to be purchased.
- Indicated in it is the purchasing of the business in good faith.
- The Purchase offer is still for further review and not yet binding.

7. Presentation of the established Purchase offer by the broker to the seller.

8. Acceptance of Purchase offer by the seller with signature affixed on the contract.

9. An escrow account will be opened consisting of the down payment for the acquisition of the business.

10. Thorough investigation of the business done by the buyer.

11. A final draft of the Purchase offer contract will be made with the aid of a lawyer which and a notary.

12. Final fixed selling price is established by both buyer and seller.

13. Determination of whether there will be retention of staff.

14. Pending debts will be paid by the seller that is not covered in the purchase offer by buyer.

15. Signing of the final purchase offer in the presence of a notary with the full payment paid to the seller.

16. Seller turns over the business to the buyer.

Legal considerations involved in purchasing

There are many legal considerations that need to be taken into account. Find out everything about the business you are going to buy. Know and learn about your responsibilities associated with the acquisition.

Along with the legal considerations, there are also legal costs accompanied with the purchase and it will depend on how complicated the transaction and amount of work needed.