Owning a small business is an integral part of the American Dream for millions of people. Entrepreneurship flows through the veins of so many people, it should probably be considered the national past-time instead of baseball.
But there’s no denying the fact that succeeding as an entrepreneur involves a lot more than having a great idea and giving it a shot.
Business success requires a tremendous amount of hard work, preparation, and a fair amount of luck.
But it is possible to give yourself a leg up on the game by buying an existing business that is already established. This strategy avoids many of the most dangerous aspects of starting up a brand new enterprise and allows you to hit the ground running as a small business owner.
There’s an important caution required here, though:Buying an existing business is not going to succeed if you choose the wrong one. Click To Tweet
In fact, choosing a business that’s heading for failure already, or that’s simply not the right fit for you as an owner, can be an expensive disaster waiting to happen.
How to choose the right business to buy
Here are five steps you should take when deciding on a business to purchase. While they may seem like common sense, it’s amazing how intensely emotions play into fulfilling your dreams. So, it’s always good to have a checklist available to ensure your bases are covered and you’re making a logical decision.
1. Narrow it down to your interests and passions
While you could probably come up with a few exceptions that prove the rule, it’s extremely rare to find a successful business person with a long career who has made it big doing something they don’t enjoy.
Your personal preferences, interests, and passions are what fuel your creativity and give you the energy you’re going to need to face (and overcome) the daily challenges that come with running a business.Do not get into a business only for the money ~ you MUST be passionate about it to succeed!Click To Tweet
If you decide to get into a particular industry or market strictly because you think there’s money to be made, you’ll tire of it quickly and you’ll no doubt end up regretting your decision.
So, when seeking out potential businesses to buy, narrow down your search to products, services, and industries that fire you up and that you can honestly see yourself enjoying for years to come.
2. Build your support team
Anyone who tries to buy (or start) a business completely on their own is unnecessarily crippling their chances of success. The top business leaders in history have always surrounded themselves with talented, intelligent people who could help them make the very best decisions.
As a potential business buyer, you would be wise to do the same by bringing on some professional advisors to assist in the decision-making process and in walking you through the complex buying process. This team should consist of a lawyer and an accountant – both of which are experienced and knowledgeable in the kind of business you’re looking to buy.
Many buyers also benefit greatly by involving a professional business broker with firsthand knowledge of the local market and, in many cases, a commercial real estate agent who is also intimately familiar with the local area.
These professionals can provide valuable advice and lend the value of their experience to make your purchase as smooth and painless as possible.
3. Do your due diligence
With online business listing services and local classified ads available, there probably won’t be any shortage of potential businesses that meet your basic requirements. Before falling in love with one, though, it’s vital to spend an adequate amount of time researching the company to learn about its history, its current situation, and its likely future.Be sure to thoroughly research a business before buying; what to look for and how to find it explained here.Click To Tweet
A lot of this research can be done online via public records, social media, the company’s own website, and news outlets, among other sources. It’s also not a bad idea to bring your support team in on the research because they very well may have access to information you can’t readily locate and they’re sure to have invaluable insights on how to analyze the information you find.
Here are some of the key things you’re looking for:
- Evidence of financial health (no large outstanding judgments or tax liens, no recent rounds of layoffs, etc.)
- Evidence of a strong, loyal customer base (no overwhelming volume of negative reviews, a satisfactory BBB rating, etc.)
- Evidence of a steady or growing market (new products or services introduced in recent months, signs of recent or planned expansion, etc.)
Of course, a more thorough phase of research will ensue if and when you contact the current owner to let them know you’re interested. At that point, you and your support team should be able to review all financial and legal documents as well as any other specifics the owner can share.
All of these items indicate the business has a solid past and is doing well now, which puts you in a much better position to keep the momentum going into the future.
4. Take a tour of the facility
If you’re seriously interested in a particular company based on what you find out about it through research, be sure to take the time to visit it in person before going any further. You don’t need to necessarily even make your intentions known as a potential buyer. Simply visit as a customer and inspect the building and grounds.
Much like buying a house, the curbside appeal of the business can tell you a lot about the current owner and how much time, effort, and money they routinely invest in their business. If all your research indicates the company is doing extremely well, but you find that the building is in serious disrepair or (for retail stores and restaurants) it’s like a ghost town during what should be peak hours, then you know something has changed and your research probably hasn’t revealed the whole story.
On the other hand, if you visit and find the business bustling with activity, clean and well-maintained, with smiles on the faces of staff and customers alike, it’s a pretty good bet that business is running well and has potential.
5. Work with the owner
This final important step should be taken once you’ve settled on a specific company and all of the steps above have identified it for you as a viable and exciting possibility.When buying a business, work with the owner to learn everything he or she can teach you about running the business. Click To Tweet
Don’t go into it with any preconceived ideas or with an attitude that’s going to tune out their suggestions. If this business has passed all the tests above, it’s being run successfully by this individual. There’s no valid reason to ignore them now.
Many new business owners find it both helpful and exciting to actually physically work with the owner at the place of business for a few weeks or a month prior to finalizing the sale. Others may sign a contract with the current owner to have them stay on in an advisory role for 3 to 6 months to aid in the transition.
Whatever arrangement works best for both of you, the point is to take advantage of the current owner as a valuable resource with firsthand knowledge and experience you need to succeed.
Start your search today
Independent small businesses and franchise opportunities become available every single day. The best are snatched up quickly because there are so many people interested in joining the ranks of the successful entrepreneur. If that’s your dream too, don’t spend another day waiting around and just thinking about it.
Start deciding what your most important requirements are and narrowing down your list. Locate a valid list of businesses for sale and start doing your research. If you follow these steps, you have a better-than-average chance at ultimate success.
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- 5 Steps You Should Take When Buying a Small Business - July 6, 2016