You can find out more about the problems, pitfalls and opportunities of buying a business on the Business Link website (www.business.qld.gov.au > Buying a business > Going into business > Buy an existing business), South Australia Small Business Administration website (www.sa.gov.au > Selling a Business > Start your business > Buy a business) or the relevant country small business association.
These organizations can help you find a business to buy:
• Businesses2Sell (www.businesses2sell.com.au). This site lists more than ten thousand businesses for sale, covering entire Australia by state.
• WorldBusinessforSale.com (www.worldbusinessforsale.com). This site claims to have listings of businesses for sale from 198 countries, updated daily. They did have twelve businesses for sale in Afghanistan, three in East Timor and four in Zaire, which is a pretty fair test.
• BusinessesforSale.com (www.businessesforsale.com). This link is to their database of over 53,000 businesses for sale, covering the United States, United Kingdom, Spain, Canada, Australia, South Africa, New Zealand, UAF and elsewhere. There is a specific section covering Work from Home businesses for sale, including franchise opportunities.
Valuing a business
When you buy a business you are in essence buying an established stream of profits. True, the business may have tangible assets such as stock, computing equipment or machinery. But the value of these hard items will be insufficient to compensate the previous owner for the accumulated time and effort that he or she has spent growing the business to its present state. The amount business owners expect for a business they are selling over and above the physical assets is referred to as ‘goodwill’. The better the business, the more the goodwill costs you. There are several ways of valuing a private business (one not listed on a stock market). The two most common are using the P/E ratio and using the rules common to the specific business sector.
Using a formula known as the price/earnings ratio, a buyer is invited to pay a multiple of a year’s profits by way of the purchase price. For example, buying shares in Marks & Spencer will cost around 16 years’ profits, putting it on a P/E of 16. P/E ratios vary both with the business sector and with current market feeling about that sector. For example, the high-tech sector may have a P/E ratio of 40 or more at times, whilst for high-street banks a P/E ratio of 8 would be more normal.
Advantages and disadvantages of buying a business
Buying a business has a number of advantages and disadvantages.
Advantages of buying a business include:
• Much of the uncertainty of starting up has been eliminated, so you should have fewer costly mistakes.
• You inherit relationships with customers, suppliers and perhaps even financial institutions that would otherwise take years of hard work to build.
• You may be able to pay yourself a living wage from the outset.
• You eliminate one competitor. If there are already two car-cleaning businesses in the small area in which you live, both have been around for years and yet you have decided that this is the business for you, and then buying one out may make economic sense. That way you could get 50 per cent of the market rather than the third you could aim for with three players in the game.
Disadvantages of buying a business include:
• Valuing a private business is difficult (see the next section).
• Finding a business and negotiating a purchase price can take time and may require several attempts before you succeed.
• You will need professional advice from lawyers and accountants as safeguards to ensure that you don't end up taking on hidden liabilities for tax owed, or responsibilities to past and present employees.
Source of this article: http://businesses2sell.blogspot.com.au/2013/12/buying-business-advantages-and.html