Brower: So you want to buy a business here?
Grand Enterprise Initiative
So you want to buy a business here?
I hear it all the time.
Why buy a business when it’s so much cheaper to just start one from scratch?
It might seem cheaper to start a business from scratch, but the truth is that when all the longer term (by that I mean three years down the road) costs are considered, many times it’s just as reasonable to buy a business that’s already endured growing pains and costs.
So for those who are considering a business purchase, here are a few tips.
First, make sure the business has a mission and task that the buyer can enjoy. This is important because when the going gets tough, which it will, it’s that enjoyment factor of being on the job that just might carry the new owner through the inevitable tough times. In other words, a poet who loves working with intricate word play probably shouldn’t buy a machine shop, no matter how profitable.
I think a whole lot can be learned about a business simply by talking to the business’s customers. That’s right, getting to know a business through its client base makes a lot of sense. Are the customers happy? What do they think could be done to make the company better? Why do they give the business their patronage? There’s a lot to be learned from customers.
A buyer should seriously consider spending a week or a month working in the business he or she wants to buy, if possible. This is the best way I know of for a buyer to understand the operations and core mission of the target business. This well help a person know exactly what questions to ask while doing what people call “due diligence” in pondering an enterprise.
Many times people want to buy a business because they see great opportunity to grow that business. But a serious analysis of any business must go beyond such growth opportunities and explore what is weak about the business. Is there a way to expand the business’s core mission? And what about competition and changes in the market? Try and understand these before buying.
Employees are the cogs that make a business work. A prospective buyer should talk about key employees and staff and try to get assurances that these employees aren’t all going to jump ship the minute a new ownership is announced. Don’t overlook this key point.
See if the business is operating at levels of expense and income that compare favorably with industry standards for similar businesses. This is called benchmarking and it’s not difficult to find benchmarks for most any business type. Do a benchmark analysis of the target business to see if it fits into its industry standards.
There are a few other key points. Don’t pay too much, which is a judgment based on the cash flow of the business. Look at the books and figure that out, perhaps with the help of an accountant or bookkeeper. Which brings me to my last point: Don’t be afraid to ask for help in considering a big decision like buying a business. There are people out there who can steer buyers in the right direction.
Of course, it all comes down to there being a willing buyer and a willing seller, which involves interpersonal chemistry and gut judgement. But a willing buyer will be a whole lot happier by giving serious consideration to the topics discussed above.
Patrick Brower is the Enterprise Facilitator for the Grand Enterprise Initiative. He provides free and confidential business management coaching for anyone who wants to start or expand a business in Grand County. He can be reached at 970-531-0632 or at firstname.lastname@example.org.
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