You will need to answer many questions when selecting a business to buy. You’ll want to ask yourself, for example, what your role will be in the new business. Are you buying yourself a job or buying a business that you hope to grow? To what extent will you be involved? The person who buys a job will invest a steady amount of time into maintaining the business in order to bring home a profit; conversely, the person who buys for growth has two options.
First, you can put in long hours, hard work, and additional funds to build a business. The second choice is to buy a business that will be run by other people; in this way you can make key business decisions without doing the day-to-day work.
If you will be a hands-on business owner, choose a field in which you have some degree of skill, knowledge, and enthusiasm. After all, if you are going to invest both your time and your money, you should enjoy being there.
Once you narrow down the field to meet your personal interests, knowledge, and skills, the next step is to find a business that fits your personality, temperament, and comfort level as a business owner. Too often, individuals buy (and later sell) businesses that don’t match their personalities. Ask yourself:
- Am I comfortable dealing with a wide range of personalities and the needs of numerous customers, or am I more comfortable interacting with a small number of clients?
- Can I delegate well and handle the needs and schedules of various employees, or should I look for a one- or two-person operation?
- Do I want the challenges of an around-the-clock environment, or would I prefer a business that is a Monday-through-Friday undertaking?
- Am I comfortable maintaining inventory, or would I prefer a service-oriented business?
In the end, you want to select a business that matches your needs. Take into account your temperament, attention to detail, people skills, ability to multi-task and delegate, and other personal characteristics.
Once you have carefully considered what you enjoy doing and the type of business that suits you best — retail, service, manufacturing, online, storefront, business to business, etc. — you will need to determine your business-buying budget. You will need to review your financial picture, including your credit, closely with help from your accountant or financial advisor in order to determine how much you can pay up front and how much you will need to borrow.
From a financial standpoint, you will want to choose a business that is valued appropriately. This means that the valuation is supported by accurate financial data. The degree of profitability will also depend on your skills and your ability to market and promote a business. It also will depend on your needs and personal goals.
For example, one person might buy an undervalued, struggling business because she has the time and skills to turn the business around over the next three years. But someone with more capital and less time may decide to pay more for a steady business that is clearly more profitable now.
With your accountant or financial advisor, review all of the financial details and assets of any business that you consider buying. You will also need to determine what else is included in an offer, such as real estate or a favorable long-term lease, and see if that fits into your price range.
In the end, the “right” business is the one that meets nearly all of your criteria. It is one in which you see yourself being involved, whether that means a small business to maintain during your retirement years or a growing business that you envision building into a franchise in 5 to 10 years.