Buying an existing business can be a great way to become your own boss without going through the headaches of startup. However, there are also some risks to be aware of. To improve your chances of success, look for a business in an industry you’re familiar with and where you have some past management or operational experience.
To begin, you’ll want a business broker on your team. A good broker can help you pinpoint promising companies that are up for sale and that meet your criteria. They can even find companies that aren’t advertised for sale but whose owners may be willing to sell.
Once you and your broker have found some companies that look interesting, here are some key questions you’ll need to ask and issues you’ll need to research.
- What is the state of the industry in which the business operates? Is the industry in growth mode, or is it mature or in decline?
- What is the state of the business’s target market? Is its target market growing or shrinking? Are its target customers undergoing demographic changes, such as aging, loss of disposable income, or other transitions that could put the business at risk?
- Is the business’s customer base growing? Is the business adequately diversified, or is it overly dependent on one or two big customers?
- How does this business compare to competitors in its industry? How many competitors are there? What are their strengths and weaknesses?
- What is the state of the region where the business is located? Are people moving into the area or are they moving out? What about businesses? Is the local economy growing or shrinking?
- What kind of staff does the business have? Do employees have skills that are difficult to find elsewhere? Are their wages average, above average, or below average for the industry? What benefits does the company offer?
- Is there a lot of turnover at the company? How long have key employees been with the company? Are key personnel likely to stay with the company after a change in ownership?
- What is the company’s reputation in the industry and the community? Businesses are often up for sale because of problems the owner may try to hide. Go online and ask around in the community to learn as much as you can about the reputation the company has among customers, vendors, and prospects.
Doing your due diligence (see “Complete Due Diligence Before Buying a Business“) will provide answers to these and other questions.