Taking over an existing business can be a better option than starting one. If the deal is good, you’ll save a lot of time, usually wasted on creating a business, and get right down to it. The best part is that businesses from various industries are sold almost all the time.
Their owners are either looking to retire, wish to change their activity, need the money, or getting into trouble. If a business is sold because it got into trouble or is not working that well any longer, it’s not that great for you, the potential buyer and future owner. This is why you need to do some research before closing a deal. Here are 7 very important factors to consider before buying and taking over an existing business.
1. Get to know the business and its history
Did you find a business that interests you? In this case, it’s recommended to start doing some research. First, try to find out as much as possible about that type of business. Check out the industry niche where it activates, find out what it means to run such a business, what kind of customers opt for this kind of business, and what are the costs of operating it. Once you got general information about the industry and type of business, take the research to a deeper level.
For this, you’ll have to contact the business’s current owner and book a meeting with him or her, in order to discuss more about the business. Find out more about the evolution of the business on the market. See what kind of business models have been used for its management and which ones did not work that great.
Did the number of employees change in time? If yes, why did this happen? These are some of the questions you could ask, but, ideally, write down a set of questions before going to the meeting, so you won’t forget any important detail.
Read More: 7 Tips on Starting a New Business
2. Take a good look at the numbers
Understanding the financial details of a business is crucial, especially when looking to take over an existing business. After all, you want to make an investment that is worth the effort, not put your money into a never-ending hole. Considering that buying a business may involve borrowing money, securing your investment is highly recommended.
You will need to see how much money the business is making, in comparison with the costs connected to its daily functioning. At the end of the month, the balance is negative or positive? Also, are there any debts connected to the business? Some business owners borrow money or make investments that don’t work out, which means that the future owner of the business will have to take care of the generated debt.
If the business is not doing as great as it once did, try to find out what led to this situation. Maybe there’s a lack of interest from the manager, the marketing strategy may be ineffective, or the costs are larger than the generated profit. So, always take a good look at the financial details of the business before purchasing it.
3. Find out why the business is up for sale
This may be a delicate question, but you need to find the answer to it. Why is the owner selling his or her business? In many cases, business owners won’t admit there’s a major problem with the business, because they want to sell.
So, you may have to see if there are any skeletons in the closet. If the owner does tell you the reason, you should look for evidence that will confirm that you heard the truth. For this, you may have to talk to suppliers, customers, collaborators, or do research on your own. There are number of different business being listed for sale. For example, if you decided to go with a campground business, make sure that you compare multiply listings and see how they stack up against each other. Even if there are problems, being aware of them will give you the chance to come up with an adequate strategy, if you still want to take over the business.
4. Consider the reasons you want to buy it
Why do you want to buy a particular business? Is it in an activity niche you’re familiar with? Does it belong to an industry that is very successful these days? Does it match your future goals? Ideally, you should not get just any business, but the one that is a match with your future plans, skills, knowledge package, or dreams.
In many cases, you don’t even need technical skills, if you have great managerial abilities. But this means you’ll have to manage your time and resources well, to delegate tasks to the people that have the skills to do it, and keep track of the business’s evolution. Think well whether you are able to do it and whether the business is what you want and need.
5. Check out the business’s customer base and potential prospects
When you take over a business, you also take over its customers and potential prospects. Having a closer look at the customer base of business will let you see just how popular the business is. Also, did it manage to win over loyal customers? Getting to know the current customer base will also allow you to look into the future, checking out to see what other groups of customers may be attracted by your business.
6. Are there any risks associated with it? If so, what kind of risks?
Risks are always present when making business. They may be even higher when taking over a business that is not yours. You need to know the risks before spending money on a business. Are you capable of dealing with the existing risks and take care of the matter if any of these risks occur?
Knowing the weaknesses of a business is just as important as knowing its strengths. If you want to manage it effectively and improve its products and services, you need to know the least pleasant parts of it as well.
7. Does it match your skills and goals?
What are the reasons for driving you on this path? Why do you want to run a business? Is it because of financial independence? Are you tired of working for someone and you want to work for your self instead? Do you want to make a long-term investment that will secure your future? Are you looking to change your career? These questions should help you find out what motivates you and what are your future goals. Then, you should find a business that works best in your case, the kind of business that will take you closer to your desired goals.