Becoming an owner by purchasing an existing business is very different than starting your own company, which I discussed in last week’s blog post. There are a few important misconceptions that people have when it comes to buying a business, including the idea that purchasing an already successful company means continued success with a new owner.
Buying an existing business does not mean you avoid the risk that comes with starting your own, but instead that the risk just presents itself in a different form.
The following 4 steps are what I believe to be the most important in the process of purchasing a business.
1. Decide Exactly What You Want
It is important that you understand exactly what you’re looking for in a business before you even begin searching. A clear set of requirements and characteristics must be set right from the beginning.
2. Gather Options and Screen Them
As the saying goes, do not put all of your eggs into one basket. Take your time and find more than one candidate that meets your requirements. Having a pool of candidates that all meet your requirements allows you to compare options and gain a well-rounded perspective.
Be sure to collect as much accurate information about your potential suitors as possible. The more accurate information you obtain, the more you can reduce your risk. Knowledge is power! Do your research, verify your sources, and validate your findings!
3. Think Critically
Once you have gathered all the information necessary on each candidate, you must critically consider each of them and best determine what effects a change of ownership will have. As a potential new owner, it is your responsibility to consider how a transfer of ownership will affect the brand, reputation, and success of the business. Is the success of the business due in part to its ownership? Will the employees stay? Will clients continue to work with the business? Do not leave these questions unanswered!
4. Determine Value and Make Your Offer!
It is time to start thinking numbers after narrowing down your search. What are you willing to spend for a business? Does this align with your potential candidates? The sellers may not be on the same page with you when it comes to business value, so be prepared to field those discussions. Once you have determined the appropriate value, make your offer and move forward!
Are you embarking on the process of purchasing an existing business? Have you considered the real risk and how to counter it? Let me know what you think in the comments!