If you want to speed up the process of starting your own company, you may want to buy another business and turn it into your own. But, you could encounter a few challenges by doing that. Here’s what to look for before buying into an existing business.
You know it can take years to get a new business off the ground and earning a healthy income. What if you don’t want to go that route? Is buying an existing business a good idea?
It can be.
But even if you inherit a business with loyal customers and great products, you’re also taking on all of the problems that they had as well. This could mean serious debts or potentially dealing with competitors that are slowly making the business redundant.
So before you decide to invest the money into an existing business, there are questions you need to ask and many things to consider (coming later in this post).
How does buying part of a business work?
One great question that I’ve been asked a few times. “What if I buy a portion of a business? How does buying part of a business work?”
Unlike taking over a business by yourself, you’d be dealing with the previous owner or new partner. So there will be (and should be) plenty of paperwork and lawyers to look over any and all agreements.
This will protect you and those you go into business with. However, if you want to skip over all of the paperwork and time, go all-in yourself and don’t get a business partner. This can be tougher since you’ll need to do many things on your own, but it will help you avoid many headaches that come with a business partner!!
What To Look For Before Buying Into An Existing Business
So, what do you need to do before buying a business that’s already running?
Let’s talk about it!
Buying a business doesn’t have to mean purchasing a large corporation or a company that is already successful. Your personal goals could involve chasing your passions and doing something that you’ve always wanted to.
That could mean buying a small business that is involved in an industry that you personally love.
- For example, it could mean buying a small bakery that you have plans to improve.
- Or, it could be buying a fashion upstart so that you can create your own clothing brand.
There are many personal goals that you can set as an up-and-coming business owner.
Stick to these goals so that you can easily find a suitable business to take over.
2) What kind of industry are you interested in joining?
Remember that buying a business means that you’re probably going to be joining an industry that is already well-established.
- Buying a restaurant means that you’re going to join the food industry.
- Buying a tech startup means that you’ll have loads of competitors to fight against.
If you’re going to buy a business, then you need to understand the type of industry that you’ll be joining. If you’re not accustomed to running a business in said industry, then you may have a steep learning curve ahead of you.
Try to look for businesses that are already involved in industries that you have experience in. And try not to pick something that is completely out of your comfort zone unless you’re ready to study a lot.
You may be presented with a unique opportunity to buy a business purely for its assets and not the brand. For example, there may be a well-equipped restaurant business that you could buy, but it may be offering food that you have no interest in.
In a situation like this, it’s perfectly fine to purchase the business just for the sake of taking over its assets. Then, repurpose the business and its hardware to create a restaurant that is more suited to your tastes or personal preferences. There aren’t many opportunities where this applies, but it’s worth considering it as an option if available to you.
Just remember that you’re going to be spending a lot of time creating a new brand and building up a new audience. You’ll be losing any reputation that the brand had and you won’t be inheriting its customers either, meaning you’ll essentially be starting from scratch.
4) What businesses are available for sale?
You should also look at the businesses that are available for sale so that you have a rough idea of the opportunities open to you. Services like BFS are a great place to start if you’re looking to buy a business.
You can book an initial viewing to see just how well the business is performing and the type of customers it gets, and you can read up a bit more information about the history of the business. This will give you a rough idea of how you can improve the company before you decide to take over.
Doing your research at this phase is extremely important since it’s going to give you some idea of how to plan out the next few months or years. Having a plan makes it easier for you to picture where you see the business in the future, and it’ll give you an idea of the potential it has.
Always remember that if a business is for sale, then there’s probably something wrong. It’s extremely unlikely that somebody is selling a successful business. It could be a bad location, or a dwindling customer base, or a problem with the building that it’s in.
If you can, try to get in touch with the seller and ask them why they’re putting their business up for sale. This is a perfect opportunity to get to know the business and understand some of the challenges that it’s facing so you know what to expect.
Even if someone is selling their business knowing full well that there are problems, it’s not necessarily a red flag or something you should avoid. If you believe that you can fix those problems and make the business succeed, then it’s a good opportunity for you as an entrepreneur and you shouldn’t pass it up.
Before buying into an existing business, just be realistic about what you can achieve in the new venture.
Don’t just assume that a business’s previous owners had no idea what they were doing. They may have already tried countless things to make the business successful, but they might’ve failed because of outside forces. Just keep your expectations in line and don’t assume.
Should You Buy An Existing Business?
Now you know a bit of what you should do before buying an existing business, but should you buy an existing business?
You certainly can!
But remember, buying an existing business doesn’t mean an automatic large salary and following. In fact, it will take just as much work to make an existing business truly yours as it would to start from scratch.
But, it can be a worthwhile investment, and it’s nice to know that someone else did a bit of the legwork first!
Are you ready to start your own business? Or will you be looking to buy an existing business?
AUTHOR Kimberly Studdard
Kim Studdard is a strategy consultant and course launching expert. When she isn't spending time with her daughter and husband, or crying over This Is Us, you'll find her teaching other mompreneurs how to scale their business without scaling their workload.