Things to Consider Before Buying a Business
Buying a small business can be an amazing opportunity for entrepreneurs with the gumption to run a small business but without the resources or knowledge to start a business from scratch. When you buy an existing business, you often get the inventory, clients, customers, premises, marketing strategies, and records from the very beginning. Because establishing a client base is, by far, the most difficult part of starting a small business, purchasing an existing business help entrepreneurs skip this step completely.
A lot of entrepreneurs make money by "flipping" small businesses. They may invest a moderate amount of money to purchase a business that is failing. After giving it a makeover, adjusting prices and operating costs, and expanding the customer base, these entrepreneurs then sell the small business at a profit. There are others, however, who purchase businesses that they love to prevent them from going out of business. No matter what your reasoning is behind considering a small business purchase, it is important to give this decision a great deal of thought.
While buying an existing business can be a great way to save money and start earning an income more quickly, it also comes with a great deal of risk. Here are some important things to consider when purchasing a small business.
Quality of Premises, Furnishings, and Equipment
One important thing to consider is the quality of the business premises, furnishings, and equipment. If you purchase a business with a run-down or shabby facility, outdated furnishings, and equipment that doesn't function, you're going to be spending more than you can afford to get the business up and running. A great way to evaluate the quality of the business as a whole is to check for cleanliness standards. A dirty business most likely has not received any recent updates or effective maintenance.
Spend some time assessing the current in-stock inventory of the business. This is your commodity. With this inventory, you'll be generating income to stock new things and invest in new marketing strategies. If the current inventory is old or unusable, you'll have to spend a great deal of money upfront to make the business operational.
Debt and Liability
Always evaluate the outstanding debt and liability of a business before you purchase. The last thing you want is to invest money in a business that is just going to suck you dry rather than generate profits. A business with outstanding lawsuits or debts should simply be avoided.
Customer and Client Information
Before you invest in the purchase of a small business, it is a good idea to evaluate the current customers and clients of the business. One important thing to consider is the demographic of the business's customers. Are the businesses all older people? If so, this may mean that the business has trouble attracting a younger clientele. This business may be fading in the eyes of the consumer. Are there any customers making first-time purchases from this business? If not, your entire customer base may be "loyalists" who would react poorly to a change in ownership.
Location and Marketability
It's important to evaluate the location and marketability of the business before you decide to purchase. Is the location of the business conducive to profitable business? Is it located in an area of town that is expanding or diminishing? Is the business marketable? Is the product or service being offered something that consumers want? Answering these questions will help you determine whether purchasing the business is a prudent investment.
One of the most important things to consider when purchasing a small business is the reputation of the business under its current management. A business with a great reputation and satisfied clients is easy to turn into a profit-making machine. Businesses that have poor reputations, however, can take months to turn around in the eyes of the consumer. If the business you are considering has provided bad products or services in the past, dealt poorly with clients, or failed to pay its bills on time, you may be looking at a bad investment. Do some research in the community to evaluate the impression the business has made.
These tips are not all-encompassing. Every business is different just as every entrepreneur is different. If you are willing to risk money on a business that needs a lot of work because you love the product or service, that's your decision. If you want to pass on a business with incredible potential because it simply doesn't interest you, that's also your call. Don't ever buy a small business that you don't love. When you love the business you've purchased, your chances of success increase exponentially.