By Mike Handelsman, SPECIAL TO THE TIMES
Thinking of turning your dream of starting a business into reality? You are in good company. According to a recent Yahoo Inc. poll, two-thirds of Americans have entrepreneurial aspirations.The most cited reasons given by aspiring entrepreneurs are the ability to do something they love and a desire to be their own boss.
For would-be Texas entrepreneurs, there are plenty of businesses to buy.
Statistics from BizBuySell, an online business marketplace, suggest Texas is among the states with the small businesses for sale, behind only Florida, California and New York. The company estimates that Texas accounts for 6 percent of businesses for sale in the country.
How Much Does It Cost to Buy a Business in Texas?
Knowing the average sale price for the type of business you are interested in should be your first step as you begin the buying process.
Last year, according to BizBuySell sales data, small businesses in Texas sold for an average of $539,000.
The price-to-revenues multiple averaged 0.6 and the price-to-cash-flow multiple averaged 2.6.
In other words, a Texas business with annual revenues of $600,000 would likely cost you $360,000. An alternative valuation might be arrived at using the company’s cash flow information. For example, if the business had an annual cash flow of $350,000, the valuation would be $910,000.
Most buyers are more interested in cash flow numbers, rather than revenue numbers. After all, cash flow pays the bills, and ultimately it is cash flow, not revenues, that rewards an owner for all their hard work.
The BizBuySell data suggests that Texas buyers are especially interested in purchasing retail and service shops. Retail establishments, such as restaurants, were the most popular business-for-sale transaction in Texas last year, going for an average sale price of $426,000. Service establishments, including auto repair shops and drycleaners, constituted the second most frequent transaction, with an average sale price of $473,000.
This kind of site offers a database full of available businesses in any area, which means that you can search locally or anywhere in the country if you are considering a change in location.
Online marketplaces also offer a number of a number of tools buyers can use to find the perfect business. A comparables report, available on sites such as BizBuySell.com and BizComps.com, can provide estimates of fair selling and buying prices for a business, based on similar businesses and chosen geographic area, gross income and cash flow ranges.
For example, if you were thinking of buying a bagel shop, you can run a report on the average costs of buying that particular kind of establishment in a given area.
In addition, most online business-for-sale sites offer helpful buyer advice sections full of documents with useful tips to make sure buyers perform all the right steps throughout the purchasing process.
Make sure the ad has answered your biggest questions about the business, such as initial asking price, rent costs, length of lease, number of employees and past performance.
When asking about price, it is most important to focus on how much cash the seller requires for a down payment. You will naturally be curious about the asking price and how much money you can potentially make — which is certainly important — but determining the down payment amount first is the key in knowing whether or not you want to continue the buying process.
Make a list of any questions not answered, and be sure to get all the information you need from the seller. For example, it is a good idea to ask the reason why the business is being sold. Also, be sure to ask the seller to provide documentation for any numbers provided.
If the business seems like a good fit after receiving the answers to your questions, ask to view the business firsthand. If possible, visit the business without identifying yourself as a potential buyer to make sure you are satisfied with its appearance and location.
Do not be afraid to negotiate. Businesses generally sell for up to 25 percent less than the seller’s initial asking price, so there is no need to settle for numbers presented to you at the start without question. For example, 2006 BizBuySell data shows that on average, Texas restaurants for sale on the site sold for 84 percent of sellers’ original asking prices.
Do not be alarmed by any minor discrepancies – they can usually be resolved. Some outside professionals may advise you to shy away from the deal unless everything seems perfect.
Advising you to buy a business puts a great deal of responsibility on them, so many advisors offer conservative advice. As long as you get them to check out the numbers and paperwork and everything still feels right, it is probably safe to go ahead with the deal.
Before signing, though, it is wise to have the seller agree to advise you at no charge for a certain amount of time (30 days in person and perhaps another 30 days over the phone is a fair amount).
This will ensure that the previous owner will teach you what you need to know to run the business. If you require additional consultation, you might need to offer the seller a fee for his or her time and advice.
First-time small business owners will likely find the job unlike anything they have ever done. Running a small business is rarely – if ever – a nine-to-five commitment. Responsibilities are likely to extend to nights and weekends.
At the same time, small business owners often discover a new sense of freedom and purpose. They will not have to deal with a boss anymore, and their schedules – while less predictable – can be more flexible.
Most importantly, a great sense of pride can come from seeing the business through to greatness.
Before you buy a business, it’s important to anticipate the lifestyle change that will be required. Understanding and preparing for the changes, perks and challenges that buying a business will present is the best way to ensure that you will have the maximum chance of success in your new business.
It’s impossible to be prepared for everything, but going into a venture having adequately thought out the process – including making use of valuable online tools and being proactive in dealing with sellers – can be the key in turning your new business into a dream come true.
(Mike Handelsman is general manager for BizBuySell, an Internet business for sale marketplace. Since 1995, BizBuySell has offered tools that make it easy for business owners and brokers to sell a business, and potential buyers to find the business of their dreams. BizBuySell lists over 40,000 businesses - spanning 80 countries - for sale at any time, with over 4,500 added or updated each month. For more information visit www.bizbuysell.com.)