Becoming an entrepreneur is an excellent way to invest in something that can bring you not only financial gain but personal freedom. However, there are also many risks that come with starting a company from scratch. This is just one reason why many entrepreneurs choose to take over an existing business.
There are many pros and cons when it comes to buying an existing business. First, you must consider the reason why existing business owners choose to sell their company. Most business owners are very attached to the business they own. There are many legitimate reasons like the desire to retire. Yet, it is important to ensure that the business is either financially stable or if it isn’t, you need to have concrete plans to resurrect its success.
Additionally, buying a business that is already in existence also typically has more upfront costs than creating your own business. However, the upside to that point is the fact that an existing business also has a backlog of its profits and its downfalls. You will also have a record of things such as cyclical ups and downs as well as hyper-local customers that can provide input or testimonials for future success. In some cases, the previous owner or staff members that stay with the business can be a great resource to your success.
Choosing a Business
First thing first, you have to actually decide on a business you’d like to purchase. Buying a business is a major life decision that will impact your personal and financial life for years to come. The first thing you need to do is to sit down and determine exactly what type of business you look for. Here are a few key points of consideration that should be crucially considered:
- Industry and Experience. The first thing you should consider is your own personal experience in the business world. You don’t necessarily have to choose a business in an industry you’ve worked in, but your past experience will be a great benefit. For instance, a former CPA may want to look into accounting practice sales as suitable ventures to buy. It could also be something as simple as the fact that you worked at a fast-casual restaurant in high school. It may not seem relevant, but you will already have a degree of knowledge as to what personality types work best for which positions and to setbacks or successes that the restaurant you worked at may have seen throughout the years.
- Demands and Involvement. When considering purchasing a business, you should ask yourself how involved you wish to be. For instance, taking over a general contractor company will not only require an understanding of general contracting bidding software but a willingness to put it to regular use. As a new owner, you will need to be very hands-on in the beginning. However, over time, is your goal to remain hands-on or to simply oversee things while a management team handles things? Also, consider the hours of the business. Purchasing an established bar or restaurant will not come with a traditional nine-to-five schedule. As far as demands, a place like a restaurant or a corner bar will typically have emergent situations that will require your attention long after a traditional workday would end. Additionally, will you be managing the property or using a property management firm?
- Size and Location. Determine whether or not you want a business that is close to home. You also need to determine the size of the business you are purchasing. While larger businesses typically make more profits, they also come with more overhead.
- Funding. Basically, how much can you afford? Will you be taking on a partner to help with financing?
After you have determined your ideal target business, the next step is to research businesses that may be up for sale. Never discount friends and acquaintances at this step. Also, never discount putting the general word out that you are buying a franchise location or other existing business. You would be surprised at how easily leads will generate with these simple steps.
After you have a solid lead the next step is to do a heavy amount of due diligence. Not doing due diligence is one of the biggest mistakes people make when purchasing a business. There are independent business valuations firms that will work to do all the work involved in a deep dive into due diligence analyzation.
Overall, these simple steps will help you to make a confident, well-researched decision when it comes to purchasing an existing business.