Small business Q&A: Buy a business or create one?

Print
Font Size:
Default font size
Larger font size

Zack Zimmerman

Posted: Saturday, March 8, 2014 12:00 am

Q. What are the benefits to buying a business instead of creating my own? — Grand Island, Neb.

A. The term franchising seems to be most appropriate in answering this question. Acquiring a business is much like acquiring a franchise. The essentials of the business have already been established and now this cow is ready to produce cash.

These essentials are the meat and potatoes of the business: the brand, the systems, the procedures, product lines, marketing strategies, point of sale, the sales process, types of equipment, facility, uniforms, the selection, the culture, the image. This is the essential value of the business.

The previous owner has developed these essentials over the course of the business’s life at a cost to the owner, and now the business is ready to work like a machine. This is the “secret sauce.”

Hopefully, the owner has documented this process and can literally give you an owner’s manual to follow. If this is not the case, then you need to look at its assets. If you located a business that is similar to your idea but may not quite be producing the desired results, the business’s assets may be for sale at a reasonable discount.

Creating a business has two substantial costs that must be considered. First, the tangible materials. This includes things such as buildings, inventory and equipment. The second is the cost associated with the time it takes to figure out how to manage these tangible materials to deliver the product or service for capital. In both cases, the previous owner has spent this time and money and now we just need to determine a value.

Q. How do I communicate my business plan to private investors? Where are they located? — Lincoln

A. Private investors are easier to find than you think. These are private citizens willing to invest into a business concept, possibly for a reasonable return. These are friends, family and acquaintances, anyone that you have designated that may have similar values to your business concept.

As a percentage, family and friends are the most common private investors in small business, accounting for more funding than bank lending, venture capitalists and credit cards.

Another source is crowdfunding, a relatively new method that uses an Internet-based platform to bring investors and business owners together for funding purposes. There are numerous platforms, but the concept is to allow thousands of small investments versus the traditional method of a few rich people with large investments.

This method has been subject to recent regulation and is still in its infancy. If you Google crowdfunding, you should be able to locate private investors easily.

Q. I am nervous about asking my friends and family to invest into my business. Suggestions? — Plattsmouth, Neb.

A. What I suggest is to write down five to 12 people who you believe have similar values in your business. Set a time, bring them together and present your vision.

This may include discussing your business plan in detail, and be prepared to specifically ask them what you want. This may include a dollar amount and/or repayment terms, but preparation is very important.

This still may be intimidating, depending on the dynamics of the relationship. Ideally, these individuals would be trustworthy, open-minded, honest individuals who care about you and the values of the business. If these values have yet to be determined, then a business plan may be required to facilitate this presentation.

Give them time to process this information. This should not be “Shark Tank” — a yes or no answer is not required at that time. Allow them to ask their questions in a professional environment with non-emotional comments and feedback. Insist that they take time to think the proposal over, while also being available for additional questions by phone, email or in person. Expect that their “knee jerk” reaction will be negative, so have reasonable answers on anticipated questions.

The more professional you make the situation, the better it will be. This will set the tone for the entire business relationship. This will be the example of how you are going to behave in a business environment.

Above all, have a clear message, clear expectations and no surprises.

Zack Zimmerman is the associate director of the Nebraska Business Development Center in Lincoln. The lead center is at the University of Nebraska at Omaha, but there also are centers in Lincoln, Wayne, North Platte, Kearney, Chadron and Scottsbluff. The centers receive funding from the federal Small Business Administration and are intended to help start, sustain and grow small businesses. If you have a question about creating or growing a small business, email zzimmerman@southeast.edu.

Copyright ©2014 Omaha World-Herald. All rights reserved. This material may not be published, broadcast, rewritten, displayed or redistributed for any purpose without permission from the Omaha World-Herald. To purchase rights to republish this article, please contact The World-Herald Store.


loading...

SPOTLIGHT »

Inside Business
To submit an announcement for "Inside Business", click here. For questions call (402) 444-1371 or e-mail announcements@owh.com.

World-Herald Alerts

Want to get World-Herald stories sent directly to your home or work computer? Sign up for Omaha.com's News Alerts and you will receive e-mails with the day's top stories.