Editor’s note: This article was first published in July 2010. The statement that bars and restaurants are the businesses most often transferred today refers to Spain in 2010.
Taking over profitable businesses that are up and running through a transfer (in Spain, a traspaso: an upfront payment to take over a running business and its premises for a set period). We will look both at the person transferring the business and at the person who decides to take it over. What should we know beforehand when we decide to take over a business through a transfer?
Well, if you decide to take over a business through a transfer, it is because you are clear that it is better to choose a business that is already running than to start one from scratch. We wrote an article explaining the advantages of acquiring a running business: Start your own business or buy one?
What you should know about a business before agreeing to take it over is a simple piece of reasoning that the owner is not going to tell you. A business whose owner wants to transfer it has not, so far, been a profitable business. Let me explain.
It is not profitable for one of these two reasons:
- The business does not make money: It may run beautifully, but the owner has probably not found a way to make a profit from it. It may have too many staff, it may carry hidden costs, or it may simply work with a very low profit margin.
- The business makes quite a lot of money: In this case, the reason the owner probably wants to let it go is that, to achieve that profitability, he has to be there for more hours than he would like, so the excessive commitment needed to make it profitable does not pay off for him.
- There are a very few cases of people who decide to leave their business and transfer it because of retirement or illness. If it is one of these cases, find out whether the owner has children or family who could carry it on. If so, there is no doubt that the business is being transferred for one of the first two reasons.
By this I do not mean that taking over a business through a transfer is a bad idea, because the fact that the previous owner failed on one of those points does not mean you cannot run it differently and achieve the high profitability you are looking for.
What you should know and study before taking it over
Every transfer is a purchase of the business for a set period of time. You need to know for certain whether, during the time you hold the business, you will recover the money invested and make a financial return that makes it worth your while.
You need to know beforehand whether you will be able to give it a different approach so that the business becomes fully profitable for you.
You need to draw up a business plan as if you were starting a business from scratch, because in reality you are starting from scratch. Do not be swayed by the business’s sales records, which may be rigged. Just remember: «a business is not that good when they are looking to transfer it».
The businesses most often transferred today are bars and restaurants. I am sure most of them are financially profitable, but they are not profitable in terms of the time you have to devote to them.
If you own a business and your question is whether it would be better to rent it out or transfer it, the answer is without a doubt transfer it. The advantages are very clear: you get the money up front, without facing the fear of not being paid. Once the contract you agreed beforehand has ended, you are fully free, legally, to decide what to do with the business.
Do not close the business if you plan to transfer it, because when a business is open you have a better chance of finding someone to take it over.
If you end up renting it out because you cannot find anyone who wants to take it over, it is strongly advisable to ask for a large deposit and take out insurance against non-payment.
Further reading
- How to be a successful entrepreneur
- Why a new business fails
- 5 ways to grow your business
- The mindset of an entrepreneur
Featured image: James Petts from London, England, CC BY-SA 2.0, via Wikimedia Commons.
