Buy a Business From a Retiring Owner and Reduce Risks

If you are looking for starting a business in retirement you have basically two options. To start something from scratch or to buy and existing business. Both are viable options, and both need some analysis to help you determine which is better for you.

Do you want to spend valuable start-up time and money learning the ropes before you get any income? When you buy an existing business that has all been done for you. You step into a revenue flow from day one, but it might cost more. What's more important? Go through the process of start-up before you make any money or have a cash-flow from day one.

Buying a business that is for sale by a retiring owner is desired. This is why:

There should be (theoretically) nothing wrong with the business.

Some owner sell business because they have to. They don't know how to run them properly, ran out of money or many other reasons. A retiring owner simply wants to cash in and not operate the business anymore. The business could have problems, but it's less likely. In addition, a retiring entrepreneur might be a "motivated seller".

The vendor won't be a competitor.

The chances of the seller opening a store just like yours in a different (and maybe better location) is almost non-existent. In spite of non-compete agreements which are difficult to enforce - this is an important factor. In a perfect transaction, the retired owner will help get going and move on to a beach somewhere. He or she might even be available to advice you from time to time.

The retiring owner might be willing to work part-time.

One of the challenges in buying a business is to learn the ropes. If the seller just wants to move on you could spend valuable time learning how things are run. An owner wanting to retire might stay on a while to teach you the ins and outs of the business. He or she will help you get to know the staff and operating procedures. This also helps maintaining the goodwill the owner has established over the years. Introducing you to the clients and so forth. In addition, it will "look" better that you took over a business from a retired owner than someone who might not have been a good business person.

Retirement-driven business sales usually means the business has been around for some time.
You would prefer that the business is well established. This reduces the risk to you, since there will be experienced and trained staff to help you in the transition. I would look for at least three years of operation. Anything less should raise a red flag - why sell so soon?

Do you have to pay more for a retiring owner business?

Technically, you would be paying more for a business with less risk exposure. If all of the above is true, risk is reduced, and risk is money.

In considering the tips above you still need to do your due diligence. The numbers need to speak for themselves and match up with your own tolerance for risk and desire for future growth and profits.