There are basically three options for getting a business off the ground.
First, you can start a business from scratch. This can be scary, capital intensive, and usually requires that the founder come up with all of the processes, procedures, and design things somewhat from nothing.
Second, you can buy a franchise. These are existing business concepts (usually fairly well established in a market) where you buy into the rights to open a new location of the business using the brand and systems of the original business. While the buyer often gets a lot of support, the cost can be high as the buyer generally shares its success with the original business and is restricted by the existing businesses requirements and expectations.
A third option is to buy another existing business and essentially take it over.
A successful purchase of a business depends on the free exchange of accurate information. Not only does the buyer need to get good information about what they will be getting, and how to keep it going, or to expand it, but the seller needs to determine whether the buyer is going to be creditworthy and have the capacity to work the business in the future. Culture and values can also be important parts of determining whether a transfer can work out.
It is important to realize that buying a business is about buying the value of the business that can survive the transfer of ownership. If the seller is the business (they are the one with the key relationships, they are the one who makes the product, they are the only one who knows how to keep it running), then the value to a potential buyer is limited.
On the other hand, if the business is relatively self-sustaining with profits, the seller can demand a higher price based on the anticipated future profits. Everyone wants a business that spins off cash without requiring much direct work.
Initially, buyers need to consider that a business is an asset that can create profits, not simply a job. A buyer can essentially purchase a job by purchasing a business, but this is a limited view. The price of a business should be closely correlated to the existing cash flow that the business is expected to generate over time, not the amount the seller is paying themselves to do the work in the business. Accordingly, the real value that can be obtained from buying a business has to do with what additional value can be created by the buyer.
More value often comes from the buyer increasing the profits in ways the seller did not, or would not, do. For example, all things being equal, if a buyer can lower the costs of the business, the business margins will increase and so will profit. Also, a buyer who can expand sales or go into new markets can increase the profits. Further, a buyer who can make capital investments, increase the quality and price of the product, or use the business assets in a more valuable way can increase profits.
A buyer who enters the market with this mindset, and the motivation and skill to take an existing business and make it even better, will not only be in a better position for negotiations, but will have the opportunity to realize real gains over time.
