Consider These 7 Things Before Buying a Business
Buying a business is an excellent way to become an entrepreneur without having to start from scratch. However, just like with any other investment, purchasing an existing business requires a lot of research.
Knowing exactly how to pick the best option for you is crucial to becoming a successful new business owner.
Becoming an entrepreneur has many benefits, so if you are looking to make the best decisions when buying a business, you've come to the right place. We've put together a guide of seven things you should consider if you are looking to buy a business and avoid buyer's remorse.
1. Finding the Right Fit For You
About 20% of small businesses fail within the first year. Therefore, there are plenty of owners that decide to sell their businesses.
However, just because a business is up for sale does not mean it is the right fit for you. The first thing you'll need to decide before buying a business is if it aligns with your values.
A company has a higher chance of surviving if its owners are passionate about it. When you start looking for a business to purchase, narrow down your interests and try to go for one that you'll actually be passionate about.
Amid the pandemic, many aspiring entrepreneurs have had a lot of success with SaaS businesses. Of course, you need to fully research any business you might consider buying, but if you don't know where to start, looking at SaaS companies for sale might be a good option for you.
2. Understand Why the Business is Up for Sale
If you find a business that you would like to purchase, it is a good idea to ask the original owners why it is up for sale. Different businesses go on sale for different reasons. For example, an existing owner might be retiring, moving, or going through some lifestyle changes.
However, you might also encounter a business that is on sale because of some deeper issues. If this is the case, you'll want to fully understand what the problems are in order to determine if the investment is worth it.
You'll want to be careful about buying a business that was built based on a poor business plan, or one that has a lot of debt. Make sure you understand that when you buy a business, you will be buying it with all of its existing issues.
3. Find Out if the Seller Can Offer Financing
Sometimes sellers will offer financing to the new owners. This is often done in order for the original owner to oversee the performance of their company going forward.
This can be a really beneficial thing if you are looking for ways to finance your investment. Therefore, when you are looking for a business to buy, consider asking if this type of deal is an option.
Most times, seller financing will be similar to getting a loan from the bank. That is, you'll probably have to provide documents such as your credit score and other information that will tell the seller if you'll be able to pay them back.
4. Fully Understand Your Purchase
Buying an existing business can be a bad investment if you don't know exactly what you are purchasing. Whenever you are ready to make a deal, make sure you know the ins and outs of the company you are buying.
Here are some questions you can ask in order to get a better understanding:
What is the business' established brand?
Does the business have a large client base?
Does the business come with employees?
What licenses and permits are needed to continue running this business?
5. Determine if the Business is a Good Investment
You will need to get an idea of the business' financials in order to determine if the asking price is fair. There are three ways in which you can value a business:
By evaluating the business' earnings
By determining the business' tangible and intangible assets
By evaluating the market and seeing how the business compares
Depending on the business, any of these methods can be helpful to determine if it'll be a good investment. If you don't think the asking price is fair after you have evaluated the value of the business, you can always negotiate.
6. Get to Know the Competitors
It is important to do thorough research to understand what your plan will be to improve operations and set the business apart from its competitors. When you become the owner of an existing business, you will want to do everything possible to improve it.
Get to know the competitors, and evaluate all the areas you could improve in order to make your new business better than everyone else's.
7. Be Prepared to Build a Team
When you buy a business, a lot of times it will come with its existing employees. However, some of these employees will not want to stay in the business with a new owner. Therefore, you will have to be prepared to build a strong team.
Of course, some of those employees will stay, so it is crucial for you as the new owner to build great relationships with them. A huge determining factor of a business succeeding is its team. Therefore, whether you find yourself with existing employees or have to hire new ones, make sure everyone is on the same page.
Interested in Buying a Business?
Buying a business can be very rewarding. However, finding the right fit for you and understanding everything that is involved in the process is crucial to being successful.
From determining the type of company you want to purchase, to looking for ways to finance it, being diligent about your research is key to making a good investment.
If you want to start your journey as an entrepreneur, we can help you find a business for sale now!
