Real Estate's Next Level Training Systems

Buying or Selling a Business Opportunity

As large industrial companies have downsized over the years, many former employees and managers have opened small businesses, purchased franchises, and started a life independent of the rat-race of corporate America. Small businesses include restaurants like a Subway and Quiznos, laundromats, flower shops, tanning salons, fitness centers, mini markets, auto repair, or anything in between.

"We have customers", explains Tim Mahon of Century 21 Keim Realtors in Bethlehem "who were former Engineers or corporate managers who are buying Curves, Subways, or any number of small business opportunities in order to work for themselves."

Buying or selling a business is often more complicated than simply buying or selling an investment property.  Purchasing any type of real estate is generally not a completely passive method of investing, however, purchasing a 3 unit apartment building to rent to tenants is generally far more passive than purchasing a business that an investor may have to personally operate.  While it is true that some businesses are sold complete with management and very little need for direct supervision by the investor, most require the investor to step in and make the business their career.

Some business opportunities include the real estate they occupy, and others simply include the equipment, name of the business, employees and "good will" of their past performance.  Businesses are priced based on their Net Profits.  Although many business owners would like the price to be based on their cost of equipment and inventory, banks and real estate professionals understand that the buyer will not pay a price that will give the buyer no return or a negative return on their investment.

"Small businesses can often be difficult to finance as well.  A buyer should always consult a mortgage banker that deals with the sale of small businesses," explains Bob Wilfinger from Mecco Commercial Funding in Allentown.

Business opportunities are generally categorized by a business category:

•� Retail Business - like a Dunkin Donuts, a Jiffy Lube, a Laundry, or a Subway Restaurant.

•� Professional Business- such as a Dental Office or an Insurance Office.  Because of licensure requirements, these are generally only purchased by buyers in those professions.

•�Distribution Business / Wholesale Business - A distributor is the middleman between the manufacturer and the retailer.  A distributor may buy truckloads of vegetables from farms and re-sell them to grocery stores, or purchase beverages directly from the maker and distribute them to restaurants.

•�Manufacturing Business - The creation or production of anything to be sold.

Important Questions to ask any Business Owner

Before a buyer leaps into the purchase of a business, they should have a clear picture of how the business operates.  For example, in the salon industry, customers tend to stay with a particular stylist.  If the owner has great income on her books, but has recently lost her 3 top stylists to other salons, the business could be in trouble.  Analyze the customer base and whether the market for the business is growing, declining or remaining stable.

•� Who is the business selling to?  Directly to consumers or to distributors and wholesalers?

•� What is the businesses approximate number of customers?

•� Do any of the customers account for more than 10% of the annual income of the business?

•� Does the business only sell locally, or is it regional or national?

•� What is the trend of the market for this type of business (increasing, stable or declining)?

•� How does the business promote or market their products or services?

•� Why is the owner considering selling their business or company?

Considering a business's SWOT

SWOT is an acronym for the Strengths, Weaknesses, Opportunities and Threats of any business.   When a buyer is making a decision to change their life by taking over and running someone else's company or business, they want a very clear picture of what to expect.

•�  Strengths - Clear definition of the business strengths.  This includes the location of the business, the employees or sales force, the product line and the efficiency of the operation.

•�  Weaknesses - Clear definition of what challenges exist in the same areas as the business strengths.

•�  Opportunities - In what way would the current owner change or improve the company?  Why isn't this being done currently?  Are there any markets that can be expanded?  Can a new market be captured?

•�  Threats - Is a competitor considering opening nearby?  Is a key employee retiring?  Is there a decline in demand for your product or service?

"When buying a business, a buyer or investor should carefully consult a Realtor or Business Broker who understands the nuances of buying and selling businesses," Marc Lucarelli from Century 21 Keim's Commercial Group in Bethlehem explains.