by P. Simon Mahler
Rather than building a small business from the ground up, buying an existing company offers the opportunity to move along the path to entrepreneurship more quickly. With all of the startup tasks already taken care of, a staff in place, an established customer base, existing vendor relationships, and processes and procedures laid out, you have a head start.
But that doesn’t diminish the importance of doing your research before making the decision to buy a business. Acquiring an existing business small business requires substantial examination so you avoid many pitfalls that befall eager entrepreneurs who leap before they look.
Investing in a business is the same as investing your savings in a mutual fund or stock portfolio to secure both your future and possibly your retirement. You should study and review the past performance and the current condition and seek help and advice from professionals on the prospects for the future.
Before purchasing a business, you need to get answers to some critical questions:
Why is the current owner selling the business? Seek the truth. If the business is in a declining neighborhood or the owner has caught wind of an upcoming market change that will negatively affect revenues or cost structure, you might put yourself at risk of failure from circumstances beyond your control. Uncovering the real reasons for a sale may be difficult. Be wary and realize that smart business owners don’t often walk away from profitable endeavors unless they have strong personal reasons (illness, retirement, etc.), or they have received offers that are too good to refuse.
How is the business doing financially? If it has been losing money or hasn’t been generating a satisfactory profit, you’ll want to dig deeper into the reasons why. Unless you’re confident you can operate it more profitably than the current owner, you might end up with a sinking ship on your hands.
What sort of reputation does the business have? When you buy an existing business, you’re getting the brand reputation along with it. That will either work for or against you. Turning around an existing business’s poor reputation will be difficult and could take years–and it might even be impossible depending on how negatively the company is perceived by customers, suppliers, and the public.
If the business has a favorable reputation, find out what has made it so. A strong reputation based on personal relationships between the owner and customers might not easily transfer to you. Be particularly cautious of this if the business relies primarily on a few key customers or suppliers.
Are you getting everything you need to seamlessly take over running the business?Find out if the purchase will include the essentials such as: leases and contracts; customer lists; patents, trademarks, service marks, and trade name; key employees who are vital to the business; and other important components.
Just remember, you don’t have to embark on the process alone. Consider tapping the expertise of professionals, especially in accounting, who can help you assess the opportunities and risks of buying an existing business.
If none of that works? Then start one yourself.
Get Focused. Get Busy. Sprout and Grow.
P. Simon Mahler, nominated as both an ‘Expert’ and ‘Leader’ Influencer in North America for small business, currently volunteers full-time for the SCORE organization as part of the “Mentors to America’s Small Business.” Dedicated to building stronger economies in small communities and helping small businesses succeed through educational entrepreneurship, Simon is committed to the future success of each and every small business in small towns across the country. He is always available to take calls for action and is willing to mentor to any small business out there across the globe. Follow him on the journey of his next endeavor, by starting a business of your own. His daily blog of activities will be posted on LinkedIn for you to enjoy. Find him on social media and connect to get some great ideas to get your business growing!