5 Myths that Hurt Potential Small Business Buyers

Many potential buyers of small business dream of one day owning a business where they can hire people to do all the hard work and they can sit back, relax and collect money. They think of owning a small business as some form of nirvana to escape from the drudgery of everyday corporate life. It’s only when they get into it that they realize how difficult it is to own and operate a small business.
In this post we aim to identify common myths about owning a small business along with the truth the owners can expect to face.

Myth – I only need to work few hours a day in the business. My managers and employees can take of it in my absence.
Reality – Let us make this clear from the beginning – owning a small business is a full-time job. In fact, it is more than a full-time job. If anyone tells you that he doesn’t work hard for his money; he is either lying to you or will not own the business for long time. You have to be intimately involved in ALL aspects of your business EVERY day. There is just no way around it. Employees will only do the work to the extent that you are watching them and guiding them.
Now, you can make it easier for you to manage the business with employees by putting in place standard processes and monitoring the key performance metrics on a regular basis. However, you have to be prepared to take prompt actions on the very first sign of trouble.
Myth – I will be able to sustain my original lifestyle by withdrawing money from business whenever I want.
Reality – Most small business owners work full-time on their business to replace the income from their previous job. A small percent of them do it build equity for the future and don’t need regular cash flow.
While it may be true that you will be able to support your family and original life style from the business in the long-term; you will need to invest a lot of time, energy and money in the initial stage of the business. At any time, you need to have enough cushion to support your family for at least 1 year without cash flow from your business.
Myth – I only need to put down 10-20% of my money. I can get loan for the remaining amount.
Reality – When we bought our business several years ago we did borrow from the bank. However, it was only after we were rejected by 4-5 banks and had spent considerable time and effort. Even then, we had to provide personal guarantee from the money earned from the other job.
With the current economic upturn it is very possible to get home equity loans from the banks, particularly for first-time buyers. You have to rely on alternate sources of funding such as friends and families, 401K savings loan, private investors and so on. And if you have attempted to do this in the past you know how difficult it is to go this route.
Myth – I want to keep my personal and business life separate. I don’t see any problem with it.
Reality – Many people think they can put 8-10 hours in the business; come home and not worry about it. You might as well not get into small business if you are one of them. Running a small business is 24×7 job. You will get calls from customers in the middle of dinner; employees will leave without notice while you are on vacation; equipments will break down in the middle of night. The list goes on and on.
If you and your family are not prepared to sacrifice personal lives you should think long and hard about getting into small business.
Myth – If I buy a franchise business I don’t need to worry about many aspects of running the business. The franchise will take care of it for me.
Reality – The opposite is probably true of owning a franchise business. While the franchise will help you in terms of streamlined processes and marketing they do have strict requirements that every franchisee is expected to follow – whether they like it or not. You will come across instances where the franchiser and franchisee are at odds over number of things.
Besides, franchiser will only show you HOW to run certain aspects of your business. It is entirely up to the franchisee owner to MAKE THINGS WORK. It is not surprising to find franchisees of successful franchise such as Subway that have failed simply because they cannot execute well.