The 30% – 70% Rule
One of the greatest gurus in the business ownership transition industry, Mr. Ed Pendarvis, said in his book, The Family Business, Family Farm: America’s Amazing Economic Engine, that the decision for a business buyer should be based 30% on the character and quality of the business being considered? Does the business make sense? Can you clearly see that it is really making the money the owner is claiming? Will it be able to run without the owner? Does it seem like something that’s going to be in demand for the foreseeable future?
Pendarvis goes on to say that the other 70% of the decision should be based on what you, the future business owner, intends to do with the business. Do you have the skill set to run the business successfully? Can you outsource the skills you don’t have? Is the business price something that fits your budget? Can you afford the down payment, if you are lucky enough to find one with SBA pre-qualification or seller-financing? Does it give you enough back so that you can get keep the lights on at home and be satisfied with the return on your investment?
And most important, is the business something you are sincerely interested in? Many people have experienced great success by taking businesses to a whole new level even though they did not initially have experience in the industry. Successful business acquirers are interested in learning about the business and the industry. They invest the time and energy to get it right. They negotiate to have the seller stick around till they got a firm grasp on the industry over the specifics.
You are better off acquiring a business that interests you but not making tons of money, than acquiring a business that appears to be making big money in an industry that totally disinterests you.
Don’t let fear, naysayers, and people who would not be entrepreneurs, distract you from your dreams. Always seek professional legal and accounting advice, but also carefully think through the process. Keep the 30%-70% Rule in mind. If John F. Kennedy had gone into business brokering, he might have offered you this advice “Ask not what this business can do for you, but what you can do for this business.”
If you would like more information on buying the right business, reach out to us at Info@BuyBizUSA.com or 833-249-2891. Get your free tip sheet – Eleven Essential Points for Buying an Existing Business. Start now and turn your worthy dreams into valuable legacies.
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