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10 Aspects to Consider to Choose the Right Business

July 26, 2012

Buying a business with a strong financial and operational track record is usually a strong indicator of future success, but is no ‘guarantee’ that you will experience similar success as the new owner of the business. In a small to medium-sized business, those results are often a record of what the previous owner did, and may be only a limited predictor of how you will perform in the business. By way of example, you may not want to purchase a hospitality business if you have no experience in dealing with the public, or buy an engineering business if you are a gold seal chef, just because it was profitable for the previous owner. Below are some suggestions to help you successfully locate a business that suits your background, skills and desires.

1. Enjoyment
Small businesses often require the input of long hours and great enthusiasm to motivate staff and to deal successfully with clients.

2. Qualifications or experience

Choose a business where you will have an advantage by way of qualifications or experience.

3. Reason for selling

Check the seller’s reason for selling. There are many legitimate reasons for selling a perfectly good business, such as retirement, marriage or partnership difficulties, health issues, and other business interests. Every business has its problems; the trick is to know what they are, and have a strategy for dealing with them. This is where it could be advantageous to have someone experienced working on your side.

4. Nature of company

Understand clearly the nature of the business you are interested in, and what role you see yourself playing.

5. Cash flow
Understand cash flow characteristics and any seasonality of the business. A year-end profit does not necessarily mean that there will be cash available at critical times to meet necessary costs, such as interest, taxes and your living expenses.

6. Funds to Purchase and Operate
In addition to the cost of purchasing the business, you need to have sufficient capital to finance inventory, accounts receivable and overhead costs. Understand how much capital is required to run it.

7. Growth and Development
Aside from the initial purchase and general operating expenses, assess your ability to fund any planned growth or development of the business.

8. Get to know the seller
Try to get to know the Seller, to gauge whether you can successfully “fit into their shoes” and run the business at least as well as s/he did.

9. Assess the employees
Try to meet the key employees to make sure they intend to stay, and that there will be no major personality clashes. In many cases, sellers will not want you to talk to the staff until negotiations are at a fairly advanced stage. If this is the case, you may wish to include appropriate provisions in the purchase agreement.

10. Avoid major changes during the transition period
Avoid major changes to the business during the transition period, unless you are very sure of what you are doing. A smooth changeover with minimum customer impact is the usual road to success.

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