Buying an existing business appeals to savvy entrepreneur

An e-mail changed Glenn Zagon’s life. It was an ad from a broker about a Chicago-area business for sale that a friend had forwarded to him.

In 2012, Zagon was evaluating his next move. An architect, he had recently closed his project management company. Before that, he had been in the construction industry and had also once owned a gluten-free bakery.

Zagon was doing remodeling projects at the time and realized he wanted to use his talents doing work about which he was passionate.

Yet, Zagon sat on the e-mail for a few weeks.

“I knew it would be difficult for me to start my own remodeling business from scratch,” he says. “I’m in my 40s, and even though I had a lot of similar experience, Mr. and Mrs. Client want to know that you’ve done kitchens and baths.”

Not many entrepreneurs consider the advantages of buying an existing business. But Zagon felt was the perfect way for him to get a jump-start in the remodeling industry.

Zagon contacted the broker and began to assess if Crimson Design & Construction LLC, a design/build firm located in Naperville, Ill., was the right fit.

Evaluating the advantages

Having been a business owner before helped Zagon examine the financial risk and gave him the perspective to understand the pros of buying an existing business.

Existing customer base: This is usually the No. 1 reason entrepreneurs buy an existing business. Zagon felt although more expensive, an existing business allowed him to get to where he wanted to be faster. The company was already established and had a good client base.

“If I took the same model and created a company,” Zagon says, “the upfront costs would be less, but where would the clients come from? I might have wanted to do that if I was younger, but I didn’t want to start from scratch.”

Location: One of the biggest assets of a small business is often its physical location. Zagon felt that Crimson Design’s location in Naperville—the third-largest city in Illinois—was a huge asset. The potential to do a steady volume of remodeling projects was high because the majority of the homes were built in the 60s and 70s.

“It’s a really nice community,” Zagon says. “It’s well-grounded and diverse.”

Another advantage to the location was the high number of larger remodeling companies in the area. “You want competition,” Zagon says. It’s difficult to compete with the little guy who doesn’t have an office. People are shopping around so it’s great to be around companies you can compete with on larger projects.”

Valued Service or Product: A huge advantage of buying an existing business is it has developed and established business or product. In this case, Zagon felt that the two owners and his own philosophy were identical. Crimson Design was doing the types of projects he wanted to do and had built a reputation for quality.

“The company had a lot of name recognition. They had already done a lot of marketing, and potential clients were finding them on the internet,” Zagon says. “They also had a lot of leads from former friends and clients.”

A great team already in place: Zagon respected the team of employees and felt they were well qualified based on their length of employment and the company’s success. In addition to the office manager and field superintendent, one of the owners was an architect/designer and the other did marketing and sales. The computer program was high tech, and Zagon knew it would be a large learning curve to rebuild the team.

“It’s awkward at first,” says Zagon, “because the employees have known the existing owners and now you’re the new boss.  Communication is important to help put them at ease. You need to assure them you’re not making changes and they aren’t losing their jobs.”

Once Zagon decided to move ahead with the purchase, he brought in his own trusted accountant and transactional attorney after signing a confidentiality agreement. He also applied for a small business loan, which was a helpful, because they send their own appraiser to assess the value of the investment.

“I couldn’t call references because you have to stay below the radar,” Zagon says. “You can’t even tell the employees much until it’s a done deal. So what you do in the meantime is your research.”

Once there was a closing date, Zagon met with the employees. During the transition, both owners stayed at the company; one for a month, and the other continued working for three months. Zagon highly recommends this.

“You really need their help in the beginning because they are the ones who get the calls, and I needed them push business my way,” he says.

“One of the challenges of taking over an existing business is trying to do everything—marketing, design, accounting and project management,” Zagon says. “Getting involved with National Association of the Remodeling Industry was a huge help, I’ve really appreciated their support, information and research. They’ve helped me understand what I didn’t know.”

No buyer’s remorse

The decision to buy an existing business or start a new one depends on both personal and financial issues. But Zagon feels he made the right choice and had a thorough due diligence process.

“You’ve got to trust your gut and get a good read on the seller,” he advises. “You can look at the numbers, get the data and tax return, but in the end, it’s trust. It would have taken me five to 10 years to create this, and if you don’t want to wait that long, you roll the dice and buy an existing businesses.”

In the future, Zagon would like to expand the business geographically in the Chicago area and possibly open another location. Although he wants to keep the business small, he also wants to bring more people on and do more projects that fit the company’s mold.

“Compared to where my life was a year ago, I’m so much happier and fulfilled. It’s stressful but well worth it,” he noted.—Susan Swartz

 

Read how a successful business owner exited his business and transitioned to being an employee in “Planning a successful exit strategy.”

| 2/17/2014 12:00:00 AM | 1 comments