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News From Touchstone Business Advisors
From time to time, Touchstone has new business listings, changes to existing listings or important new developments, which are first previewed to those valued clients, who have previously expressed an interest in a business acquisition or sale. If you have a business associate who would be interested in hearing about our services, listings and receiving our articles, please forward this newsletter and they will be able to sign-up for future notices. You can also keep abreast of these changes and download NDA forms and business profiles on our website: www.touchstonebiz.com
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When is a "Distressed Company"
a Good Buy?
A "distressed company" is defined as one in which its financial position will soon or no longer support its ability to pay debts and/or the value of its assets is close to or less than its liabilities. In the small business world this often translates into the start-up entrepreneur has run out of resources before the business achieved sufficient cash flow and is at risk of not being able to service debt and expenses. Profitable investing in a "distressed company" is no different than investing in any other business. It requires that you understand what the business model is, why the business is currently in trouble, what strategy and investment is required to turn the business around, and what will your return on investment be for assuming the risk. If the business is in trouble because it's business model is flawed, it is poorly located or competition is fierce, there may be reason to walk away. Conversely, if the business model is sound and the business is in trouble because it is under-capitalized or poorly managed, there may be good reason to believe an acquisition may yield a positive return. Profitable businesses have few reasons to sell other than to generate a multiple of cash flow in excess of the net present value of the anticipated stream of future cash. The premium buried in the price will also include the value of tangible assets and perceived value of intangible assets. Therefore, buyers must pay the premium for the reduced risk of buying a profitable business in terms of a lower or longer time to achieving a return on investment. Some distressed companies may be saddled with the debt of start-up costs, but otherwise be sound businesses. Under-capitalized entrepreneurs sometimes run out of time and resources to make it to profitability. These are the opportunities which may afford the savvy investor a significant return. In summary, the acceptable reasons to buy a distressed business are: (1) there is solid business model; (2) it would be more risky and cost you more to start a competing company or to buy a profitable one; (3) you know why the business is in trouble; (4) you know the methodology and monies necessary to turn it around; and (5) you have the knowledge and resources available to execute the turnaround. Touchstone can help you identify and analyze distressed companies that fit your acquisition criteria, risk tolerance and available resources. Email or call Touchstone today! or visit Touchstone's website at www.touchstonebiz.com |
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Start a Business or Buy a Business?
Experts predict that for every 100 people who join the ranks of the unemployed, 10 will choose to employ themselves rather than rejoin the workforce. Some find businesses to buy, while others choose the start-up route...both motivated by the lure of independence and control of their own destiny.
Individuals are often conflicted as to whether to choose the path of starting their own business or buying an existing one. Each path to business ownership has a variety of advantages and disadvantages that any would-be entrepreneur should consider.
Starting a Business
Starting your own business can be very rewarding, generally requiring an idea or concept that revolves around a unique product, new technology, better way of doing something the market craves or innovative marketing strategy. Other times, it just might involve taking an existing product or service and delivering it more efficiently than competitors. Developing a business idea from scratch may or may not involve less up-front costs compared to buying a business. Some business concepts can be tested inexpensively from a home or small office. Researching and market testing a new business idea is extremely important, particularly as documentation for the marketing plan (which is instrumental to securing a loan or investor funding). Demand for the product or service, and strengths/weaknesses of existing competition at a minimum need be estimated. Thorough research should tap as many resources as possible, such as the Small Business Administration, other business owners, the Internet, potential customers and relevant trade associations.
The disadvantages of starting your own business, versus buying a business, revolve around the "running start" an existing business provides. In a start-up, you will need to attract customers from scratch, which can involve quite a bit of time and effort. Because there may be months or even years of few, if any, profits from the business, you may need to support yourself with personal savings. Financing a start-up business can also be very difficult. Most start-ups rely on their family, friends, and personal funds to get them through the initial start-up, proof of market or until profitability. Another important factor to consider is the risk. The chances of survival for a start-up business are lower than purchasing an existing business. Some surveys indicate up to a 75% failure rate.
Buying a Business
Buying a business can be a quicker path to business ownership, but is not without cost and risk. Existing businesses may be valued at a premium for providing you with an existing concept, customer base, location, assets and cash flow. Structuring the transaction as an asset purchase can usually protect you from contingent liabilities, but careful attention to due diligence and securing appropriate legal and financial advice is important.
The advantages of buying an existing business versus a start-up are tied to being a "known" versus "unknown" quantity. Financing sources, for example, are usually more receptive, because the business they are funding has an established history, assets, and a proven idea. Or, the seller of the business may provide a portion of the financing in the form of a Seller Note. Established businesses generally are less risky, because there is an existing customer base, relationships with suppliers, operating processes, a known location, and employees have already been hired and trained. In addition, there is existing cash flow which will likely provide some immediate income and debt service capability for the buyer.
Experts generally agree that, in most cases, paying the extra cost for an existing business will outweigh the risks of starting one from scratch. The ROI (return on investment), in terms of time, capital, risk and opportunity-cost must be weighed for any investment.
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Touchstone can help you find a business that matches your acquisition criteria, risk tolerance and available resources. Email or call Touchstone today! or visit Touchstone's website at www.touchstonebiz.com
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FEATURED LISTING
Storage Shed Niche Manufacturer & Retailer -- with Real Estate
This established company specializes in manufacture and installation of storage sheds. Founded in 1986, the company has provided the owners a steady income through numerous economic cycles. Storage sheds account for about 80% of the company's annual revenues, with custom garages filling-in the balance. Customers consist of homeowners, business owners, school districts, state and county municipalities. The company currently serves customers in Colorado only. Growth and expansion could come from expanding e-commerce sales, including more services for existing customers (such as concrete, electrical, etc...) and serving a wider geography. This would be a great add-on business for an existing construction or home products company, or solid platform for a new owner/manager. This business is offered at $250,000. The real estate is offered separately for $975,000.
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UPDATE ON TOUCHSTONE LISTINGS
Niche Manufacturing & Distribution Company
- Consistent Sales, Industry Growth, Strong Seller Support, and RE Available
Fleet Truck/Van Repair & Maintenance Company
- Full Service Facility and Mobile Service, Satisfied Customers, Great Cash Flow
Niche Manufacturer and Construction Company
- High Quality, Low Cost Storage Shed Manufacturer
- Real Estate Available or Lease
Hip Boutique for Women, Baby & Home
-Established, Well- Designed Retail Shop in Cute Victorian Building, Owner will Train
Personal Training Studio/Fitness Club
- Turn-key Opportunity to Acquire Expertly Designed Membership Fitness/Personal Training Studio
Boulder Curves Franchise Resale
- Great Neighborhood Location with Absentee Owner, Who Will Provide Financing
Denver Curves Franchise Resale
- High Growth Redeveloping Denver Neighborhood, Growing Membership, New Lease
Day Spa and Salon
- Great Acquisition Opportunity for Less Than Value of Inventory & Equipment
For Detailed
Information See www.touchstonebiz.com
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