I have the chance to buy the business I’ve worked at for the last decade. My boss plans to retire in the next two to three years, and he has no family to take over. The business isn’t exactly “sexy,” but the profits are good and I believe in the work we do. Am I crazy to consider this?
Not crazy at all. Just know that most people are not cut out to be business owners. There’s a lot of risk.
That’s what Arch thought. When he graduated from Texas A&M, he got a nice, safe job with a local contractor. But when the contractor lost a big job, Arch lost his.
He returned home and worked for his father. But that didn’t spark any passion in him.
That’s when he remembered the time he’d spent in his grandfather’s general store in Harrisonburg, LA. Arch had always thought that seemed like a fun business, so he decided to go for it.
His first convenience store was tiny. Just two gas pumps.
He kept tinkering with the concept and listening to his customers. He finally figured out his “secret formula”: highway locations, cheap gas, clean toilets, and great food.
Arch’s stores have done OK. Estimates put their combined sales near $1 billion a year (it’s privately-held, so nobody knows for sure). Not bad for a gas station named after his dog, Buck.
The business you’re considering may not be the next Buc-ee’s. But if you’re looking for the most reliable way to build serious wealth in America today, don’t look to social media influencers, professional athletes, Silicon Valley venture capitalists, or Wall Street CEOs.
Look to businesses that endure: car dealerships, construction companies, beverage distributors, grocery stores, trucking companies, dental practices, etc.
Princeton economist Owen Zidar and the University of Chicago’s Eric Zwick call these owners “everywhere millionaires,” or “the stealthy wealthy.” Their new book, The Everywhere Millionaire, reports that for every public company CEO, you’ll find more than 1,000 private business owners with “transformational wealth.”
Before you put an offer on a business, here are five things to know.
- Know the business
Do you know the specifics of sales, purchasing, accounting, and HR? You need to understand the business from top to bottom. Know what’s working and what’s not.
- Know the relationships
Most businesses experience the 80/20 rule – 80% of the profits come from 20% of the customers. Apply it again, and you may discover that 64% of your profits come from just 4% of your customers.
Do you know those 4%?
Also, are there key employees? Will they stick around once the current owner sells? What will encourage them to stay?
- Know the books and the banks
Be sure you understand the business’s cash flow and profitability, and that you’re confident you can maintain and grow both. Remember: hope is not a strategy.
Will bank credit lines be essential? If so, that’s OK. Just make sure the bank is willing to work with you as the new owner.
- Know your plan
On day one as the new owner, what is your plan? Keep things just as they are? Change a few things? Change everything? You’d do yourself and everyone around you a BIG favor by KNOWING your plan well ahead of time, and SHARING it with your family and key people.
For most people, change is hard enough. Surprises usually are not well received.
- Know yourself
This may be the biggest one. No matter how well prepared you are, running a business can be hard. Perhaps the hardest thing you’ve ever done.
But…it also may also be the most rewarding thing you’ve ever done.
Only you can decide if it’s right for you. Think about it. Pray about it.
But if you decide to move forward, do it full speed ahead. Don’t look back.
And be sure to have fun.
P.S. Buying a business usually means writing the biggest check of your life, often with borrowed money. How you finance the deal, and how it fits with the rest of your financial plan, deserves as much attention as the business itself.
So, if you’re considering buying a business, give us a call at Argent Advisors (318-251-5858). We’ll help you look hard at the numbers before you sign anything.
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Byron R. Moore, CFP® is managing director / planning group of Argent Advisors, Inc. Email him at bmoore@argentadvisors.com. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5858.
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