Guide: Tips for Buying into a Business-
by Business Standards Institute^tm

Evaluating and Selecting a Business,
Guide on How to buy part of a Business
Checklist Tips on How to Buy into a good Business
Buying stock in a small business or corporation
Read all of this BEFORE you buy any business opportunity or invest.

Buying into a business, or owning part of what a business uses in exchange for a royalty, or participating in a business is a less-often considered alternative to buying a business or business opportunity by yourself. If you are tired of working for idiots or a greedy cruel corporation, then read on. You can succeed in business and perhaps even find a good and real business opportunity. Along with this, first read How to Buy a Business.

You need to know key factors and methods of valuation shown on that link.

Read this before buying or starting a business or franchise. Evaluate whether the company is keeping up with new trends and whether it will do some internet marketing. No matter which way you go, be aware of the importance and complexity of proper internet marketing; It's not easy or cheap anymore. To participate in a good company as a partner, investor, licensor or contractor/employee, you need to know if people you'll associate with will CORRECTLY do web marketing, business website design and promotion. As you go forward, make time to glance over Web Success articles and learn about good website design and promotion. Those articles also teach the critical importance of integration of all functions within an excellent business strategy.

After you read about buying a business generally, consider these alternatives to outright purchase of a business or business opportunity which are often simply inferior businesses touted by founders who could not make their products sell enough on their own. A more ideal situation is a growing business needing your skills and capital. THIS IS NOT INVESTMENT ADVICE FOR ANY PASSIVE INVESTMENT.

1) Start with Priorities:
No matter whether starting or buying a business (sole owner) or buying into a business, franchise or business opportunity, always start with the same priorities:
Learn how to recognize a good business that is a near-monopoly, with exclusive rights to a high demand product in a growth industry, and the field or industry matches interests you have had for a long time. This is extremely important, because new business executives make many mistakes, and only such high-profit growth businesses can overcome those mis-steps to become real money-makers. You want into a high-margin business with little competition. A leader in a niche enjoys about half the profits of all the companies in the group, typically. You never want to be in a struggling 3rd rank business in a competitive stagnant or dying industry. You have to study and practice identifying good businesses. One place to do this is read stock analyst reports of leading new companies, or look at the Inc. 100.

2) Choose a business with a unique product in high demand in a growth field at reasonable prices. First look for exclusivity, uniqueness and high demand, high quality and high margins (near 100%+).

3) The product or service itself should be clearly a "wow" product - it hits you clear and hard as great. You should get excited about the product or service, not the sales or networking scheme, even though the company should have a good marketing plan. Don't depend only on yourself; Ask knowledgeable experienced strangers and test ads, appeals, ad copy and do product tests. Ask for sales records and testimonials.

4) Compared to buying a business opportunity, the big advantages of participating in or buying into a good existing business are:

• It has proven itself in your market already. That is far more difficult to do and more real than projections;
• The product or service may be more unique and high-demand than you can come up with on your own
• Management is either very good or recovered from mistakes;
• The business has the major advantage of some size, some customers, some credit and recognition, goodwill and mind-space in the market which takes years to build;
• You won't have to take on the awesome, lonely and stressful responsibility of owning and managing a business solely by yourself (there is a reason most businesses are called a "company"---that meant in the company of others).
• You may not have to put out as much cash and labor and risk your own credit as you would if it is solely your business; You may not have to put out any cash if you are a licensor of a good idea;
• You may find a more flexible role as a contractor to an existing business, or be able to exchange work for equity (stock or share units) or both;
• You likely save years of hard work of a start-up, unless you are licensing your idea, where at least you save the work. You also have the power to choose who to license your concept or invention.

These advantages tell you why it is often better to just work for a great company that can make the hard decisions, take the financial risks and afford all the perks and pay and advantages that are very difficult for you to achieve otherwise. Remember, you can work for great companies as a service provider, freelance contractor or vendor.

5) But buying into a business has many balancing disadvantages over running your own business:

• Obviously having the power and flexibility to make your own decisions quickly is wonderful if you become good at it (but most people need good constructive criticism of their plans and decisions, which you can get from an advisory board or retired executive);
• Your potential gain from a highly successful high-margin business may end up being less as a minor participant;
• Likewise the feeling of accomplishment and the glory of starting and running your own business is less;
• Potential risks to the investment or licensed idea by mismanagement or even corruption of executives in a larger business are higher (and if you are in a partnership instead of a corporation or limited partnership or licensing, your liability could be high);

Business decisions are not easy. You are beginning to see that decisions are not simple and obvious. There are many factors here that you have to weigh carefully to decide what is right for you. If you aren't smart and enjoy studying some (reading and thinking), don't love the idea of being your own boss, taking major responsibilities and risks, working hard and becoming a salesperson and sales manager---then reconsider running a business on your own.

6) Next, as in buying anything large, do your "due diligence" of making sure that what you have seen so far and been told is accurate. Check out the company in every way you can, such as credit rating, time in business, legal registration and especially actual sales and customer impressions. Look for testimonials, especially unsolicited. If the company produces many for you quickly, you may really have something to consider.

7) As in the Buying a Business Opportunity article, be especially wary of marketing and sales schemes touting "income streams" and "high income". Avoid the nebulous income stream-type hyped non-businesses that are pyramid schemes like affiliate programs and link exchanges, and just avoid most alleged opportunities that emphasize selling me-too products to your new member affiliate "downline". Those usually are going to lose your money unless you are a fanatic salesperson who doesn't mind 20 no's before a yes, and even then they may steal your money. Be extra careful regarding off-shore anything, or anything regarding complex financial instruments. A business is not primarily about financial instruments or financing schemes, although good financing ideas can help a business.

8) Beware of claims of high returns or "income" over 30% per year on your time and money. Basically, you should be more intersted in them than they are in selling you. They don't chase you around because they are more interested in making money in their core business--- selling a great product. Any claims of "returns" should be conservative and cautious, with disclosure of risks in a "forward looking statement".

9) Again---to succeed in business, you have to learn the basics of business. Look for unique products in high demand with low competition, like a virtual monopoly, "high margins" and "fast turns" of inventory. Look to buy into a company with a secret formula and better production and quality of something everybody wants.

Go look at production efficiencies and look for special skills or production machinery and a strong marketing and customer service ability. Look for a lean, well-run organization with efficient good workers. Talk to workers a lot, if possible.

10) Look for a great business strategy that is controlled by a budget, emphasizing positioning, differentiation, secret methods, product features and improvements that no competitor has. On finances, look for low debt and strong sales.

11) The product should be an easy sell. Ideally it almost sells itself. But be careful of fads, like the yellow rubber boots among some young people in the 1990's. Fads are short-lived and the company can end up bunches of unsellable inventory. And don't fall for hype of some scheme for selling and marketing business opportunities or some non-exclusive rights to sell a me-too product.

12) Competition is key, now and in the future. Be sure that a small or medium business that you buy into has almost no competitionin the niche. That is why you are looking for a totally unique product with features only available through your company. Even more important: Be sure the product can not be easily-copied. It should have some secret formula, methods and unique combinations of methods, production secrets and patents if possible (though not always necessary).

A few more general guidelines for anything you go into are:

• he business or product should be one you really know about, preferably by direct experience working in that field;
• Always study the industry and field and do your due diligence to check out every aspect of it;
• Study how to do proper business strategy, positioning and differentiation;
• Study good management methods and learn some about business finance (not just a little about accounting);

13) Learn about "valuation" of a business using those ratios and other methods, and talk to experienced retired executives about other rules of thumb and unwritten methods they use to value a business. You need to do several valuations of the future value about two and three years out, doing them different ways. You then cross-check those valautions against each other and weight the ones you believe are a better projection for the particular company. For example, some food product companies are usually rated low as to valuation by future earnings, but then a fairly new very unique high-demand item may have been mismanaged, incorrectly rolled out and underfunded. It might be in a fast- growth segement of the industry, like spicy foods. But though the potential sales really are high, that industry is low margin, has a ton of competition and distribution is expensive, so it takes a lot of volume and therefore money and good management to get to that potential. That is called knowledge of the industry, which comes only from experience. But that is also where you find potential gems to buy out, perhaps with a small group of three or four people. The under-funded weak creator owner-manager has given up and knows he does not have the ability or funds to up the volume. There are many other similarly unique situations that take a careful analysis and an excellent strategy to succeed when buying or copying in part of to take to success. That is an example of one of the more competitive industries and cases. In general avoid most food businesses as too competitive, too much capital, too long to build sales and too easy to copy.

14) Don't just get enamored about some idea you heard about but really know little about. This is a common mistake in buying into a business, especially a new business (not existing). There are plenty of "promoters" out there whose over-enthusiasm for a mediocre product or service---is contagious. Don't catch his or her disease. Be coldly analytical and pragmatic. Ask very hard questions. If it is about some machine or technology, talk to a capable engineer, physicist or successful inventor or developer of other similar technology. Ask them to critique the concept (if it is not confidential, which it should be). You might have to simply ask questions about the priniciples which such machine is claimed to exceed or excel in, and ask why there are the existing limits that this machine is claimed to exceed. And when you finally get so excited that you have to buy... lay down till the feeling goes away. If you still feel that way a week later, then evaluate it again.

IS THE BUSINESS NEW OR EXISTING?

What you do next depends on whether you are looking to buy into or participate in

• a brand new business start up, or
• an existing small business, or
• a larger business.

The Brand New Business:

15) The brand new business allows you much more flexibility but has more risks and is likely more difficult than buying shares in or working for an existing good business. In a new business, you get to ... choose who to partner and work with; choose how to manage and design the business strategy yourself; choose how to finance early operations where there are little sales; how to set up all the logos and trade dress, advertising, website and promotion materials and methods, how to design the organization, legal structure and investment methods of the partners (using the word partners loosely, to include corporate partners).

With a brand new company you also can choose to not do the business yourself, but to license your concept or hire out your special abilities for a current or future percentage or other basis. You need to understand loans and equity versus royalties.

• Equity is shares ownership. The shares may grow in value. They may be slightly difficult to sell.
• Royalties are a percentage of sales, often paid annually around February. Royalties are more often paid on licenses to use a patent or concept. Franchise fees are a bit like royalties.

If you have a really great idea, you can license it out. Or if you need a great idea, likewise you may license one from someone. You don't have to have or do it all yourself. You need to learn the basic business principle of SWOT- Strengths, Weaknesses, Opportunities and Threats. You should run yourself and your business on those important factors. They determine your personal and business strategy to a large extent. If you are strong in ideas and weak on money, you might license your idea to others strong on money and management. If you are a good manager and hard worker with some money, you might get investors and license a great idea. Focus on your strengths.

16) In a new business, you have other options like being ....

• a major corporate partner based on money and/or work contributed;
• a promotor but more of a minor partner based mostly upon work contributed (sweat equity agreement);
• a moderate partner based on contributing the main product concept and some work, or just licensing.

You can even put nothing in except labor-management of a pretty good idea of yours, using others' money, if you really are good at management. There are interesting and relatively easy methods of doing this. Contact us on that. You will probably need some legal advice to complete that kind of deal. That is, you still need at least about $1500-2000 to put into advertising, discussions, preliminary marketing materials/copies and legal fees.

17) Most of the issues of starting a new busines with others, whether active participants or investors is regarding:

• how well you get along, both personally and in business matters,
• how honest the others are.
• how much do they really have to contribute - is their contribution complimentary to what you have,
• how experienced are they in small business,
• whether their expectations are reasonable (what percent out do they expect?)
• are they control freaks or too talkative to the point of going to be a distraction;
• how greedy are they ... can they take long periods with no profits in a worst case, and still be nice;
• and how much control do they want?

Some balance of personalities (analytical vs. quick and intuitive, etc.) is important as a balance wheel when one person goes off too far from a balanced analysis of what to do. But partners and investors are to be avoided if at all possible, or there must be ways to enforce penalties for some partner or investor who becomes an obstacle or disruptive. You need to have some rules in advance about not slowing down the workers when the business gets going.

One more key point to remember is to avoid actual "partnerships" and joint decision-making. Put one person in charge for at least 6 months to a year at a time. Put a rule in the bylaws that a major no-confidence vote can initiate a joint decision making or veto system. The term partnership is usually never a good legal form of business to be in. Consult with a good business attorney.

19) The best test of how a group of investor partners are going to get along is in writing the "term sheet" and rules and high-level strategy of the business. Get everyone to sign off on those documents and agree to stick by them until an annual meeting or major event or problem. If the group can not get along great at this stage, it only goes downhill from there. Back away and look for others or find another way. Being in business with people where the money is significant to them is just like getting married without most of the benefits. You should almost be in love through way past the honeymoon period.

20) Going together to buy a franchise is probably an easier sell for you. People liketo see a businesses like their potential business already operating, because most people don't have much vision to see one in their mind. Many people with lots of money have little creativity and must have a clear picture shown. In those cases, if it is good, money chases good ideas and successes. Whatever you are going to sell participants upon must be crystal clear, especially if it is not like something existing. See the Catch-22? Truly great ideas are usually brand new and not easy to see, or they would have already been taken and not be as potentially lucrative. You have to use that kind of argument with good illustrations and good PowerPoint presentations to convince your potential partners (the word partner used loosely).

21) Be careful about advertising for investors. It is generally illegal to advertise for use of other's money without their participation in the business; That is promising passive returns on investments over 9 months. Those are defined as "securities" and are highly regulated. There are various ways to reach investors, but public advertising is not one, except for certain accredited rich investors. Introductions, seminars on related subjects, information booklets on related subjects, stock brokers and botique investment bankers may be legal means to reach investors. Certain limited participation in management of a segment of the business or on intervals (like a board) may qualify as participation. Seek competent legal advice when raising capital. Always work hard on identifying all major risks for a disclosure statement. That is the main thing that can save you from claims of fraud or not being informed.

Buying into an Existing Business:

22) Again consider the business as a whole, with its strategies taking into account the competition, the company's strengths and weaknesses, threats and opportunities (SWOT), and its care of "branding", image, positioning, and pricing. All these must line up and seem reasonable to your careful observation. Step back as a hard cold buyer of the product with no vested interest. Would you be highly-impressed anyway? Notice that you should repeatedly "step away", take time, avoid pressure and never make a fast decision on going into business. Take months at least to study and decide.

Many of the points of starting a new business above apply to buying into an existing business. You still:

• need the unique product, excellent strategy, great management and good organization;
• need to evaluate the business;
• need to make sure the business is well-funded with healthy ratios, good market outlook, high margins and is run by a budget that enforces the strategy;
• need to evaluate possible partners coming in with you, or the existing owners as new partners whom you should readily get along with well;
• need to make sure the management is excellent with a good record;
• be sure your assets or skills are a good match, that your strengths help fill the existing company's weaknesses.

23) Like with business opportunities, a good way also to evaluate a business is whether they are chasing many small investors or distributors or MLM type memberships. Really good companies are too busy making real money selling things to new people who are not going to be sales people mostly competing with you. The management should speak about the business' competitive advantages, product quality, uniqueness and demand. When they early advertise or talk about cash flow systems and income streams, be wary. You should want them more than they need you.

24) Examine disclosure statements, offerings and accounting reports carefully. Ask about all substantial risks. You have to study and determine whether income and profit projections look realistic. Talk to a seasoned business expert and an an accountant if there is a large commitment involved.

Much of buying into an existing business is like investing in small growth stocks or pink sheet penny stocks, but without even those limited protections and liquidity (ability to sell). You should read a lot about that. You should study the INC 100 over past years. The added factors are that the business is unlisted and your stock is likely unregistered and can not be easily sold. If you are an active participant and sell it as such, you may have better luck. Talk to a lawyer about your exit stock selling strategy. At least the stock market is fairly "liquid" as registered securities on public exchanges. If you start thinking that direction, don't expect great returns and know that stock valuations and prices are unpredictable, not some steady fast gain, and not controllable like you owning a little business selling some great demand product with visible profit every week. These are very different animals. Examine cash needs and your exit (sale) options carefully. Stock investments usually take some time to get a return, if any. Selling your own hot product entails high risks, great responsibilities and possible great rewards.

25) As usual, for any business, after you study it, a brief visit with an expert or accountant is a good idea. Talk to the Association of Retired Business Executives through your chamber of commerce or local SBA office or business college. they will set up a one hour meeting. Go prepared. They are invaluable to give you a final critique of your plan. They were successful business owners or executives who know the ropes.

OTHER POSSIBILITIES if you are an entrepreneur at heart or have a good idea but no money and don't want to work that hard:

Before you buy, think about other ways to go into business. Working for a great company with great products is really the easiest way to participate in a good business, rather than trying to do all that mostly by yourself. There is big advantage to being larger and established, and being "known" for something. To be an entreprenuer, you have to have certain characteristics, mostly being knowledgable and hard-working, willing to be the salesperson, accountant and janitor every day, be pragmatic, studious, and able to go months without pay sometimes, with nerves of steel. If you are like that, come up with your own business better than most of the not-very good opportunities you read about.

As in our alternatives to business opportunity offers, you might find a friend or person interested in running a business, who has complementary skills, and cooperate in a venture, or pay someone for a good idea who has no money or who will never run a business, and license their idea relatively cheaply. They might have the next billion-dollar idea. If you like the sound of that, or you have a great idea and want to be the Licensor, get in contact with us. We love business, and like to do it right. We do consulting at low cost, or may accept a small royalty for helping you. Or, we may want to license your idea or help some license your idea into a real corporation to "do it right".

That presents one more option: Watching medium size companies carefully and making offers of licensing your ideas to them. Most do not accept "unsolicited concepts." That is they have "not-invented-here syndrome" and believe they are too great and knowledgable of their business and spend too much on people who should have good ideas but usually don't. But a few might consider a good idea. Talk to us about approaching businesses if you have a good idea. We might buy it and remarket it if you accept a discount (ie: wholesale it to us on a wrap (they pay us, we pay you your percent).

Summary

Do your homework, Analyze the business like a business analyst with the pointers above. Consider all the options. Do your due diligence. Understand what a good business really is. Time and money spent here can help you succeed by finding a really good business with possibly good partners. Good luck!

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