Buying an existing small business can be an appealing proposition, especially if it is already successful and making a net profit. Unlike starting from scratch, you have access to past performance as a potential indicator of future success. That being said, it’s important to be on the lookout for risks when buying someone else’s small business.
Here are five tips for buying an existing enterprise.
1. Know your needs
Prior to considering the purchase of an existing business it’s essential to have an understanding of the type of business you are looking to own. This way you’re less likely to be blinded by a good opportunity that doesn’t quite match your lifestyle or business goals. Consider the types of industries you are interested in, what size business you are willing to run, where you’d like to be based and how much travel you would be willing to do. It’s important to realistically consider all aspects of self-employment and create a list of business ‘deal breakers’ so you are clear about what you’re not interested in taking on.
2. Consider a business broker
Finding the right business can be difficult. If you need to cast the net wider than your personal networks, it’s worth considering a business broker. A business broker acts as an intermediary between buyers and sellers – similar to a real estate broker. Discuss fees upfront – most brokers get paid a percentage of the sale by the person selling the business, but this isn’t always the case. It’s also important to find a qualified broker with access to lots of businesses.
3. Assess the accounts
Be realistic about the current value of the business and the prospects for the future. This means assessing the sales, costs, profits, assets and liabilities with a qualified accountant. It may also be necessary to have a business valuation conducted by an independent entity. Remember to explore the current owner’s reasons for selling, as this may help you predict your own experience with the business. Having the right small business accounting software can make taking over an existing business easier.
4. Research the competition
Rather than taking the current owner’s word, do a thorough assessment of the competition. Compare other businesses with similar products, services and offerings. This will help you identify strengths and weaknesses in the business you’ll be purchasing, and can help you avoid inadvertently entering an already saturated market.
5. Funding a business purchase
When purchasing an existing business, it’s likely you’re in for higher upfront costs than when building a business from scratch. Speaking to a qualified, independent financial advisor may help you understand the funding options available. It’s essential to take the time to research different lenders to ensure you secure the best business loan, as this will affect your bottom line.
6. What is working and what can be improved?
There are two common scenarios when it comes to buying an existing business. Either the business is already quite successful or it is not performing strongly. If it’s the former, it’s crucial to understand the success drivers behind the strong performance as this will be your baseline. This includes researching into the current marketing and business plan, delving into all past PR and Event Marketing initiatives that generated traction, and even factors such as the location of the business and the demographic of the customers. This can create opportunities where you continue to build off the current performance and reap higher rewards in the future.
If it’s the latter, you will still need to review all the past initiatives and plans to understand why the business is at it’s current positioning. Find out why the business hasn’t been performing well. Is it because of the pricing? Could it be the products itself or the location? Perhaps, the wrong audience is being targeted? After getting further insights, you can then make the necessary changes to change the fortunes of the business.
Purchasing an existing small business can provide an excellent opportunity for you to find a new career. Making your mark while growing the business to meet your needs may be just the challenge you are looking for.
To read more articles related to starting a new business, visit here.