For someone possessing entrepreneurial skills without extensive experience in the field, buying an already established business is a great option. While it may be a more costly option than starting a new business, it has its benefits as well. A new business will take time to reach the break-even point, but with a business that is already generating revenue, you will start counting profits from the moment you take over.
You would not have to give the business a jump start and everything should already be running smoothly. But buying an already established business is not easy. You will have to make sure that the business you are buying will earn you guaranteed profits. You also need to ensure that you are purchasing it at a fair price as well. Let’s have a look at a few things you should know before taking over a business.
Research Available Businesses
When you have chosen the industry you want to target, the first thing to do is to conduct research and discover what is available. When it comes to buying a business, it is not something that will just pop up on your Facebook feed. You will have to check several business selling websites, and you will need to research through your industry connection as well.
Once you have found a few businesses that you would like to buy, you can do a SWOT analysis and can pick the one that offers the best advantages. Make sure that you are purchasing it at a fair price. You can also consider hiring a business valuation service that will ensure you are obtaining the business for the right price.
Look into Their Tax Returns
During the process of buying, ask the company owners to share their previous tax returns. Check those tax returns and make sure that there are no discrepancies in the report. If they have underreported their sales, then you should not take this lightly.
They will tell you that everyone does that, but that is not the case. In some situations, this could make you liable for their underreporting as well. Also, if they have lied about taxes, chances are they are not being truthful in the sale of the business as well. Double-check everything before entering the final transaction.
Cling to Important People
When you are buying a business, there will be certain people working in that company whose absence will hurt the business. For example, a client representative in the company whose absence will make it harder to maintain a relationship with certain clients.
Do a thorough analysis of their employees; anyone necessary for your business to thrive must not go. If the business is led by a single person or the owner himself, try asking them to stay on for a period of time. It might be hard to convince them to stay, but you might be able to persuade them with the right offer.
Do Not Ignore Non-Quantitative Factors
The quantitative analysis of the business will only give you part of the story. Profits depend on many non-quantitative factors as well. This could include the quality of service or product and the efforts of the sales team. You may have to make an extra effort to get hold of such data, but it will give you more insight into the negatives and positives of the business. A good idea is to see it from the view of the client/customer who can pinpoint the shortcomings in the product or services.
Interesting related article: “What is an Acquisition?“