Quick Tips on Buying a Business
Many people think that buying, or even starting, a business is purely based on being in an industry that you love. Although that’s a very good idea to start with, it won’t pay the bills. Below are a few simple things to think about while making your strategy for buying a business. These thoughts will be the key to being a good business buyer and subsequently a good business owner.
Focus on what you do well. If making food is your strength, then you want to find a business that allows you to do that. Everything else like sales, marketing, finances etc. should have an employee or outside person to help or completely do those other functions. If you get too involved in things you do not do well or just too many things in general, the business will suffer and in turn, so will you.
Have a backup team in place. This group or individual should be available to help you out if the business does not come with the right employees to cover your weak points. This individual or team is best to be a business advisor or a small group of small business savvy people to be your brain trust while you are getting your bearings. Backup people will save you the embarrassment of taking a great business purchase and tanking it very quickly.
Determine if you actually need a partner. Partners can be a good thing but more often than not, they end up being a problem. If a partner is needed, make sure they have the skills to do a job different than what you are good at. Also make sure they will be able to contribute an amount of time, skills and money proportional to the percentage of the company will own. A problem in any of these areas will cause a major rift in the relationship and the business even of the partner is a family member. Don’t forget to make a partnership agreement also. Again, this is a must even if your partner is your mother.
Have a cash flow number in mind. Once more, it is good to love the industry that you are looking to buy into, but the money in your pocket will ultimately make you love the business. You don’t need to buy something solely because it has a huge cash flow (you also might not be able to afford it). It should either have the cash flow you need to pay any loans and yourself, or the ability to use your skills to quickly get it to that point and beyond.
Know how you will fund a purchase upfront. Both brokers and sellers do not want to deal with buyers who are planning on going after a loan once they finish their due diligence. Buyers will often be asked by brokers and smart sellers to show proof of funds before they even entertain an offer that will cause them to provide the buyer with confidential financial and other information.
Determine how much excess capital you may need. Beyond money to buy a business, you will most likely need some cushion money. Yes, buying a business gives you a running start, but it’s very likely that you won’t be running on a smooth track for the first few months after the transition from the seller.
Although there are certainly other points in the business buying preparation process, these quick tips on buying a business should get you off to a great start.