Tuesday, June 12, 2018

May Newsletter

Starting a business? Should you buy or build?

Making good decisions is a crucial skill at every level. —Peter Drucker

A neighbor of mine, who is a classic car aficionado, went to a large classic car show in Los Angeles. One of the vehicles was a beautiful, fully restored 1955 Ford pickup truck. He struck up a conversation with the owner who asked him if he would like to buy it. My friend told him he couldn’t afford it. The owner said, "Make me an offer." My buddy told him that anything he could offer would be far below the value of the vehicle.

"Try me," the owner said.

"Okay," my friend said, "I’ll give you five grand."

Without hesitation the owner said, "Sold!"

It turns out that the owner was an attorney who owned a collection of a dozen more classic vehicles. He jokingly told my neighbor that his wife had instructed him not to come home with the truck. To bring a vehicle up to the pristine condition of the truck would have taken months and cost tens of thousands of dollars.

Business sellers often have a far more compelling reason to sell than the truck owner had. Retirement, divorce, a pressing need for cash, and a host of other personal reasons may motivate them.

Depending on the type of business you want, it may be far cheaper to buy it than to start one from scratch. This is especially true if costly equipment is required. When you consider the time and money saved by avoiding recruiting and training a staff, start-up advertising and marketing, acquiring equipment, negotiating a lease, and dealing with regulatory agencies, there may be some real bargains out there. Many sellers include a training period for the new owner as part of the deal.

Heed this warning: To go this route, you need professional help from an accountant as well as from an attorney who is experienced in business sales. This is no time to skimp. Hire the best and avoid headaches down the road.

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