How to Buy a Business | Four Vital Questions to Ask
How To ACQUIRE A Business
Four Important Questions to Ask
It can take a lot of time and effort to develop a business from scratch. This is why people savvy enough to tap into available public and private resources decide to buy an existing business. However, going forward with the purchase is not an easy decision to make. Here are four important questions to ask during the process of buying a business.
Where to Find A Business to Buy?
The initial step is to find a place where you can buy a business. Many people go to brokers seeking help to identify the right business for them. Others check industry publications, newspaper advertisements, or various online business for sale platforms.
Online marketplaces can be a great way to find a business to buy, especially if you’re looking to focus on digital business and e-commerce startups that are increasingly putting themselves up for sale.
Is That Business the Right Fit for Me?
Here are three key questions every entrepreneur like you should ask themselves when vetting an acquisition:
What are my skills and interests? – You would be more motivated to succeed with a business in a niche that you are passionate about. Needless to say, you want to make sure you know the industry enough to take over the business effortlessly.
What is my budget? – The price tag of the business needs to fit your pro forma budget. Furthermore, the business should generate monthly sales to cover the cost of operations with the potential of making a profit. If you need additional capital, you can consider getting a business loan from a financial institution like your local bank.
Do I have time and resources? – There is no point in buying a business if you are going to neglect it. You need to have enough time, effort, and energy to ensure that your business has the right allocated resources to become a profitable investment.
What Will You Get for the Price OF THE BUSINESS?
The chances are you will have some wiggle room when negotiating the purchasing price, but before you do that, ask the business seller exactly what assets will transfer for that price? Yes, you will become the owner of the business & manager of the team in place, but will you also get its inventory, social media accounts, a functioning website, and other relevant items?
Do You Have Accurate Historical Financial Reports?
The general rule of thumb is to stick to buying businesses that generate profits for at least a couple of years. The current business owner needs to be ready to provide financial statements and reports for at least that period. This includes a detailed overview of revenues, expenses, and debts. Also, it would be great if they include a projected financial statement.
Learn More About Business Management
While you should have general knowledge about managing a business, we are talking about the day-to-day operations of the business you are acquiring. For example, you may need permits and licenses to continue operating the business. There may also be operating procedures that you can adopt as that can make you a better manager.
Here are some more general questions related to the business operations:
If the business that you are buying is digital, the product or service will be sold through a subscription model, or use one-time payments?
Are there any employees whose salary you are expected to pay?
Are there any contracts with vendors or other suppliers or providers? How long do they last, and is there an extension option?
Are you an entrepreneur?
An Austrian economist defined entrepreneurship as the “competitive behavior that drives the market process”.Thus it creates value for both market and society. Entrepreneurship is the process of creating something new of value by devoting the necessary time and effort, assuming the accompanying financial, psychological, and social risks, and receiving the resulting rewards of monetary and personal satisfaction and independence.
What problems can small businesses face in terms of entrepreneurship?
America's small business owners' optimism took a modest downturn in June, according to the NFIB Small Business Optimism Index, slipping 1.7 points to 103.3. While optimism remains at historically high levels, the June figure reverses the gain posted in May, with six components falling, three improving, and one unchanged.
Fifty-four percent reported capital outlays, down 10 points.
The net percent of owners reporting inventory increases fell two points to a net-zero percent, indicating no further building in inventory stocks in June.
The net percent of owners expecting higher real sales volumes fell six points to a net 17 percent of owners.
Twenty-seven percent of those reporting weaker profits blamed sales (down three points), 12 percent blamed labor costs (up five points), 11 percent cited materials costs, and nine percent cited lower selling prices (down two points).
Final Take On Buying A Business
As you can see, purchasing a business is both challenging and fun! You want to ensure that you pick the right business, which is why you should carefully evaluate all the details related to the purchase. Take as much time as necessary to ensure you are making the right decision as this can be the difference between success and failure down the road.
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