Equity via Systems in the Acquisition of a For-Sale Business.

– When deciding which is the best business for you to launch, doing your thorough research can save you from major disappointments. A key consideration might be, how much equity you want to cash in when you exit this business. The reality is that very
few first time entrepreneurs actually think about equity building when they pick a business to start. Hello, I’m Patricia Bottero St-Jean, founder of OPEN FOR BUSINESS, and business research strategist. I spent the last thirty years in the trenches of America’s
main street business. From launching independent startups, to franchising and acquisitions, while coaching business
owners in all three. I help corporate professionals and aspiring first time entrepreneurs, perhaps like yourself, transition from employee
to business owner. I teach how to exercise due diligence in identifying the right business path, the right market, and the right business, which is the one where you will be most successful and happiest. Last week we discussed
equity in turnkey concepts, and how essential it is to verify that the business systems in place, of whichever concept you’re
considering, are solid. Because that is the reason you are paying for a franchise fee. To have access to well-established
systems and training. Great systems in place will mean faster equity building for you, because it will require
less time for ramp up, and less working capital
than, for example, a start up. Which means the business
should break even, ensure profits sooner
than, again, a start up. The week before that, we discussed equity in
a brand new start up, which is, it’s true that
there is great opportunity in building equity in a start up. It also usually takes
longer to become profitable, because you’re creating new systems in a new business, and that often takes trial and error. Of course, it depends on the type of business
that you’re starting. Brick and mortar versus
a home based location. A brick and mortar location, for example, can be perfect for you. But it can also cost more to operate, due to fixed costs such as monthly rent. And it may take longer to break even because it will require
greater working capital due to the cost it would take. This week, we’re covering equity in acquiring an established
business that is for sale. An acquisition, is the good news, is the business is already cash flowing, unless, of course, you’re looking at turning one around
that is losing money, but that’s a different discussion. Here are two main points that I’d like to bring to your attention when it comes to systems, equity in an established
business that is for sale. The first point is, the premium you are paying
for cash flowing business represents the equity that the seller has built over the years. Which means that if the business is mostly optimized, for example, the resources of time, money, and space are fully utilized or almost, you’re probably not going to increase much more value in the business over time. But at least, if you keep the business at least as profitable as
it was when you bought it, you can recover your investment when you’re ready to exit. And that is still positive, because you bought it as an
immediate cash flowing business, which means you saved time and money in getting to the point of making profit. A great way to increase
equity over time beyond your original investment
of an optimized business, will usually, typically
require that you expand by investing additional capital. By the way, if you have
a question about this, please make a comment
below and I will reply. My second point that I wanted to make, is if you’re considering
acquiring a business that has none or very few
business systems in place, you should have greater
negotiating leverage, because when you buy the
business and the seller leaves, you will need to build
the business systems, which sometimes can be even more difficult than building systems
in a brand new venture, a brand new startup. And here’s why. You might encounter resistance from current stakeholders, such as employees,
vendors, or even customers. Sometimes, the lack of
systems in a business is comfortable for people
who are involved with it. Because there is less
accountability, usually. Keep that in mind when
deciding to buy a business. What systems are not in place, and how much work, therefore, how much time, therefore, how much money, will it take to turn this
system starved company into a well oiled business machine that will grow equity? That’s it for this week. We completed this series of
three videos and one blog where we examine this big element in your decision of choosing
the right business for you, and each type that you might consider, a start up, a turnkey
concept, or an acquisition. And that big element is the
influence of business systems and how much equity will
grow for you to cash in, when you’re ready to exit for retirement, or maybe to start a brand new venture. I hope this was helpful. You know, don’t forget, subscribe to my channel if you’d like to receive more information
that can help you, how to choose the right business for you. And for the next few weeks,
I have a surprise for you. We’re going to discuss the
various styles of entrepreneurs, where you will have the opportunity to take a free assessment, and that will help you identify which entrepreneurial style
you might be right now, so that you can match yourself to the right type of business. I really can not emphasize
this very simple fact enough. Matching yourself to the right business is the first, most
important decision to make. And it is deceivingly easy to choose the wrong path
to business ownership, or to even be sold one. My mission is to show you how
you can transform your life, by teaching you my step by step formula in researching and
exercising due diligence so you can choose the right business where you will be the most
successful and happiest. Don’t forget, next week we will continue our conversation. Subscribe to my channel, and if you’d like to
receive more information on how to choose the right business to build a life you love. And cheers to your success.

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