What To Consider When Buying a Business

posted by Chris Valentine
Knowing What To Consider When Buying a Business can help you get the best deal possible

Photo by CC user Flazingo Photos on Flickr

If you are thinking about purchasing a business, there are many things to consider as you evaluate the best options and weigh the risks. Industry experts like John H. Binkley Jr can provide specific advice and support, but here are some general things that you should have in mind when you are considering purchasing a business.

Does buying this business make more sense than starting my own?

To some extent this is a matter of personal preference and skills. There are many things that go into starting a business from scratch that you may not be prepared to do or be interested in doing. It may be that you are actually interested in doing these things, and in giving your particular stamp to the business. If you want to have a hand in developing the core foundations of the business, in building your own team and relationships, then you might prefer to build a business from scratch. However, if you are more interested in purchasing a business which has an already-established income stream and has built a reputation and image that you are comfortable with, then you may prefer to buy an existing business.

Do I have the interest and skill to run this business?

Perhaps you are interested in buying a particular business because you have always wanted to run that particular kind of business, or perhaps you are not especially interested in the specific kind of business and are looking more for an investment than anything else. Either way, if you don’t have the necessary background to understand the nuances of the business or the day-to-day operations, you need to be prepared to make a commitment to educate yourself so that you can effectively run the business, or to hire someone to run the business on your behalf.

Is the business fairly priced?

There are a number of different ways to determine the value of a business. Some take account of the assets minus the liabilities whereas others are based on an estimate of how much money the business is likely to make in future. Still others are based on the sale price of comparable businesses. No matter how the business has been valued, it is important for you to understand what has been included or excluded in the calculations. Some of the most important assets a business has are somewhat intangible and potentially cut both ways. For example, an established customer base made up of repeat customers may be seen as an asset. However, depending on the nature of the business, you may find that customer loyalty to the previous owner means that you cannot count on those customers to remain with the business once ownership has changed. Similarly, satisfied and loyal employees are also considered to be an asset – but it may be the case that key personal move on after a business is sold, or were personally loyal to the previous owner. Be sure that you understand exactly what is being included in the price of the business, and that the assets and liabilities have been valued in a way that makes sense to you.

The prospect of buying an established business represents a significant investment on your part, and it is very important that you ask lots of questions to fully understand whether this is a good option for you.

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