Buying a new business is less risky than starting from scratch. However, this is only true if you buy the right business. If you buy the wrong business, there will be no returns from your investment. In fact, you may end up closing shop and taking a huge loss.
As such, you need to know the right questions to ask when evaluating a business for sale. In this way, you’ll be able to protect yourself from taking an avoidable risk. These questions would include the following.
1. Do I Have any Interest in This Business?
Here, you need to consider whether you have an interest in the business or not. It’s the first question to ask even before collecting any data.
By doing this, you’ll be able to discover a number of things about the business. For instance, you’ll know when the business was incorporated and the expertise needed to run the business.
Ensure you know what the business does in the industry you are looking. Also, find out the number of years the business has been in operation. Check whether it was owned by several different people or just the current seller. It may be the case that the business has changed location. For example, if you are currently looking at the business as a business for sale in Nevada, it may be the case that it was previously located somewhere else. You’ll want to know this before committing to buying the business.
Also, check out why the seller is disposing of their investment. Is it because of dwindling cash flow? Don’t rush to buy any business just based on the listing. Ensure you understand the business and its operations fully.
2. What Do I Want From the Business?
There are different reasons why you may invest in a given business. However, you need to check with yourself and identify your motivation. Also, examine what happens if the motivating factors decline.
For instance, you may be seeking to become your own boss so that you can work fewer hours a week and spend time with family. Maybe you want a job that won’t tie you down, preventing you from taking holidays or leave whenever you want.
Knowing what you want from a specific business should help you decide to make an offer or not. For instance, if you want don’t to involve yourself in the day to day running of the firm, it would be safer and easier to become an employee than the owner. Ensure you still have enough time to run the business and your personal affairs.
3. Why I’m I Acquiring This Business?
You need to assess the reasons why you want to purchase the business. For instance, you may be buying a business because of its prime location. Maybe it has a huge customer base that it’s yet to utilize. The business may have something unique or an intellectual property that you can’t reproduce or purchase directly.
In all these cases, you’ll be able to buy a business that meets your needs. Don’t just buy a business because you have the money.
4. What Will Be The Exit Strategy?
While s you shouldn’t buy a business as a short-term investment, it’s always better to have an exit strategy. There are different strategies you can employ to get out of this market.
For instance, you can restructure the firm and sell at a premium. Alternatively, you can sell the shares to a major shareholder turning yourself to a silent owner. At times, you can pass down the business to a friend or family member.
As such, strive to determine the factors that may force you out of the industry. With this, you’ll also need to know whether the exit strategy will be operational or not.
Don’t invest your money blindly.
5. Do I Have Any Skill That the Business Needs?
Don’t make the mistake of assuming that randomly tweaking a few things will improve your business. They won’t. For instance, if you want to improve your sales, you’ll need a good marketing strategy, a competent sales team and an efficient system.