Buying a Small Business

Over at our sister site, TrendTracker, one of the trends we are tracking is the increase in the number of small businesses being bought and sold in the United States.



We've traced this trend in part to the aging baby boomer population. Boomers are deciding to leave Corporate America to be their own bosses. Rather than starting businesses, they are purchasing them (or buying franchises).



This article by Melinda Ligos in the New York Times offers further evidence of this trend:

As more and more corporate managers abandon the security of a weekly paycheck for the satisfaction of running their own show, many choose to buy shops, restaurants and other retail businesses.



***



Business brokers and small-business consultants report an increase in the number of entrepreneurs looking to buy a small business this year. Ned Minor, a lawyer with the Denver law firm of Minor & Brown, said calls seeking advice on such transactions were up by 20 percent.

This trend has positive and negative implications. On the one hand, some entrepreneurs believe they are limiting their risk by buying an established business. And it's true that they are limiting "startup risk" by buying a going concern.



However, buying a business can bring risks of different kinds. As the article points out, failure to do due diligence can lead to nasty surprises. A business may turn out not to be as attractive or profitable as the buyer expected.



In my opinion, though, this trend is going to continue for the foreseeable future. Service providers that assist entrepreneurs in purchases and sales -- business brokers, merger & acquisition firms, banks, accounting and consulting firms, and law firms -- should find business brisk.