Buy a Business or Start One? Go Now or Wait?
As all boomers know “The times they are a changin’”. What with all the troubles in the sub-prime mortgage market it looks as if the housing slump looks like it will go through this year. Not good. A prolonged slump in the residential housing sector will cause a slump in the general economy. May be a recession is coming up.New house means new appliances wrapped in the mortgage and such. Slower house sales, used or new, and the appliance manufacturers take a hit. Same thing happens in the furniture sector. Because there is lower demand to transport appliances and furniture then the transportation sector takes a hit also. And so, the ripple effect rolls through the economy. Recessions can mean layoffs and opportunities.Bad business times can be an opportunity for the entrepreneur. If you are looking to start or buy a business now is a good time to build your foundation. Educate yourself about the market where your interests are. If things get worse there will be “fire sale” opportunities to buy an existing enterprise. You have to be knowledgeable to know when a sale is a deal for you as opposed to waiting it out.Generally speaking the beginning of a recession is not the time to buy a business. If you have already done your homework on an industry or a firm you might find something, but make sure there is some insurance against paying too high a price. For example make a deal so that the sale is contingent on future revenues. Make payment to the current owner over time. Don’t let you enthusiasm for a business overrule your financial analysis. If you believe a recession is possible over the next 12 to 18 months you’re better off waiting on the purchase.Another thing to stay away from in a purchase is debt. Debt is fixed cost overhead that you and the business will have to live with though good times and bad. A recession for a new business owner is one more headache that might sink the operation. If the seller wants to take the money and run that is a bad sign. The major value of a going concern is the customer base. If that erodes in a recession what is the value of buying a going concern?Would it be good to buy a franchise now? Think of a franchise as a high overhead startup and the answer will come to you. The a value of a franchise is that they draw customers by their widely known reputation. In a recession that can be an tainted value.It is safer to start your own business as a recession starts. The trick here is to start small and conserve your money. Think no debt, working alone and out of your home. The low overhead operator always wins. Eighteen months from now the low cost startup may be able to pick up that going concern or franchise for a fraction of today’s price.
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