Buying a business for sale is a great path to business ownership that insulates you from some of the risks that starting up a business can entail. However, there are a few characteristics an entrepreneur should evaluate when choosing a business to buy.
The Market
The first thing to consider is the market. One of the common reasons when business owners sell their company is because they’re in a declining market. If you’re looking for a high-growth business opportunity, considering market trends will help you understand what kind of growth you can actually build on.
Think about how there have been a number of trendy business models over the years, that are now in decline that may no longer be an opportune investment. If you’re unsure of the market stability in relation to your business, speak with your broker. They have access to market data and sales comps that will provide insight into the market.
Industry Competition
Competition in the industry is another item to consider when evaluating a business. It can play a huge role in how much business you can actually do and how much effort will be required to grow the business. If you’re in a common business model like landscaping, it is important to consider how many landscaping businesses operate in a similar area, and what differentiates that particular company from the rest.
Business Size
The size of the business for sale is also an important factor to consider. If you’ve never been a business owner before, buying a large-scale operation to start may not be the best course. But if you already have experience, diving right into a larger business may be just fine.
Consider what you’re looking to achieve as a business owner and the role you would like to fill, keeping in mind the larger the company the more complex operations can be and the larger the cash flow reserves that will be required.
Customer Base
One of the best pros of buying an established business is that they often have built-in cash flow and an established customer base. However, it is still important to consider the size of the customer base when evaluating the business.
Maybe you are buying a home-based business that you are considering relocating. Will the current customer base be able to support the transition until you can focus on marketing again to a new customer base? Or, if your business acquisition is meant to help you build wealth, it is important to consider the size of the customer base to understand the current and potential growth opportunities available to the business.
Business Reputation
A business’s reputation is a huge factor for today’s entrepreneurs and is often overlooked. With customer’s ease of access to the Internet, it can be very difficult to overcome poor reviews on websites like Google or Facebook. Reviewing what customers are currently saying about a company will also give big insight into how well the company is doing overall and if there are any interesting opportunities for improvement or to add value as well as being prepared to deal with a potentially negative reputation to start.
Is the Business Worth the Investment?
This is by no means an exhaustive list of things to consider when evaluating a business, but it is a good starting point. There are many resources available to help you walk through each of these points but sometimes the best option is to contact a business broker who can help you find a business that meets your skills and requirements.
If you’re ready to buy a business, we invite you to speak with a business broker to discuss your goals and get started on the business search process. For more information, schedule a free consultation.
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