Perhaps the dismal job market can become a positive if you’ve ever thought about becoming your own boss. Few careers can be as rewarding as operating your own venture. If you’ve been bitten by the entrepreneurial bug and the timing is right, you can either start a business from scratch or buy an existing operation.
The latter can have advantages, as a customer base already exists. What’s more, business operations can be conducted by existing employees so you can concentrate on improving services rather than spending your time with a start-up. Before you leap in, however, consider these important tips.
- Find a business that’s right for you.
Good sources of information about businesses for sale include trade associations, newspaper classified advertising, business brokers and the internet. Most importantly, you’ll want to evaluate whether a business is suitable for your skill set. Other considerations are the working hours and the cost of buying and financing the operation.
- Consider the reason for the sale.
It’s important to know why the business is for sale. Consider all possible scenarios. If the engine that has been driving results is running out of gas, you may want to look elsewhere. Be sure to investigate the reason for the sale on your own, and not assume that the seller is giving you all the facts.
- Check the financials.
Work with an attorney to review the financial statements and tax returns for the past three to five years and request an audit letter from a reputable CPA. You’ll also want to make sure the business is up-to-date with bills and that no liens exist for unpaid bills. As you review the accounts receivable, do so with a critical eye. Knowing that the clientele is financially stable and pay their bills on time is very important.
- Learn about the employees.
Essential personnel are an important asset to most businesses. Look at the key employees and make sure they are people with whom you can work. As you examine the role that the current owner plays in the company, determine if he or she is critical to maintaining the existing client base. If so, you may want him or her to sign a non-compete agreement to prevent that person from being in direct competition with you.
- Examine the location.
The location is especially important if you are buying a retail establishment. You need to evaluate its proximity to competitors, availability of parking, the future worth of the neighborhood and its accessibility to walk-in traffic. If leases are involved, look at their terms and make sure a change in ownership doesn’t void a lease agreement or open a lease for renegotiation.
- Know your competition.
The competitive environment in which a business operates is critical to its success. Check into industry trends and how they might affect the company. Know your competitors and how they are pricing their products. If any competitors have gone out of business, find out why.
- Take image seriously.
How a company is perceived can be an intangible asset or liability. Talk to customers, suppliers, competitors, banks and owners of other local businesses to learn more about the firm’s reputation. Remember, it’s very challenging to change a negative perception.
Even though buying a proven business can by less risky and more quickly profitable than starting from scratch, it requires painstaking research. Carefully assemble your team of resources consisting of trusted financial and legal advisors to help you make informed decisions. The work you do up front will go a long way in making your entrepreneurial venture a success.