Buying an existing business may seem like it will be a wise and easy choice for those people who want to get into the business world or extend their business holdings. After all, doing so allows you to skip over the complex and oftentimes difficult aspects of building a company from scratch and ideally, jump right into making profits. However, just because the business is established doesn’t mean it is worth your time, effort, and money. There are numerous factors every entrepreneur should consider before purchasing an existing business to help ensure that the transaction will in fact fulfill your goals. In today’s blog, we have detailed six of the most important things you should consider before moving forward with the purchase.
1) Is the timing right?
First and foremost, you have to think of timing. Is it a good time for you to spend the money on a new business? Is the economy open to it? It is easy to get excited about the potential of purchasing a new company, but if the timing does not match up with your finances and other important factors, the transaction could prove ruinous.
2) Are there issues with the company’s books?
You should always conduct thorough due diligence of the company’s books. Unfortunately, you cannot simply take the current owner’s word for anything. The company’s books will give you an idea of how viable and financially sound the business is, and also alert you to potential issues that the owner did not mention. Issues and discrepancies in the books could indicate serious problems that you will want to avoid.
3) Company’s reputation in the community
You want to make sure that if you buy an established business, it has a good reputation within the community in which it operates. Community reputation can tell you a lot about a company’s history, and a poor reputation in the community could be more of a mountain to overcome than you will want to deal with when you gain control of the business.
4) Potential for growth
Consider why you want to purchase the business. Are you happy keeping things exactly as they were? Is the company as profitable as you want it to be? Most people buy businesses in hopes of growing them into something more. If that is the case for you, you will want to take a close look at the company’s potential for growth. If the potential is limited, it may not be worth your time and money.
5) Why is the seller leaving?
Are they leaving due to their health? Retirement? Or are they leaving because business is slow and they are trying to cut their losses? Get a clear picture of why the current owner wants to sell, and ensure it is not a reason that will affect the company’s ability to succeed once you take control.
6) Is it worth the price?
Conduct a thorough cost/benefit analysis of the sale. Is there a high enough potential for the business to have future success for you to spend the money that is being asked? Simply put, what are the chances that this purchase will pay off for you down the road?
Considering these six factors will help you to make a smarter and more informed decision when you make the choice to purchase an established business. If you are considering purchasing an existing business, the Matus Law Group can help. Give us a call today!