Should I buy a business right now? How to know when it’s the right fit.
Is it a good idea to buy a business right now? With thousands of businesses listed for sale, it’s essential to clearly understand what you’re looking for and when it’s the right time for you to buy.
Here are a few key factors to think about when determining if the time is right for you to buy a business
What are the advantages and risks of buying a business?
There are many advantages to buying an existing business. Beyond being your own boss and having the opportunity to grow the business and make it your own, you’ll also:
Possess access to the existing business's customer base.
Have systems and processes already in place.
Retain existing employees, reducing training time.
Acquire an established brand which reduces start-up time and marketing efforts.
Of course, there are also risks associated with buying a business, including:
The company may not be successful.
You could end up spending more money than you anticipated.
Significant operational changes may be necessary.
The business may have a bad reputation.
Ultimately, before making a purchase, it's essential to thoroughly research and understand the business's financial health and industry.
How to narrow the search for the right business to buy.
When buying a business, you will want to be sure you’re buying a business that fits your skill set, budget, goals, and resources. You will need to know what you’re looking for and what you can afford. Consider the following:
What is your current financial situation?
Your current financial situation plays a large part in knowing which type of business to buy and when. Start by asking yourself a few questions:
How much cash do you have available to make the purchase or downpayment?
Will you need financing? If so, where can you get funding from?
Do you have the financial stability to build the business and help it grow?
Do you need the business to produce an income immediately, or can you reinvest in it to help it grow?
What is your ideal price range?
Before making your decision, the most important thing to consider is determining if you are financially ready to commit.
What type of business matches your interest and skill set?
An excellent place to start the search for a business to buy is by first evaluating your strengths, skill set, and know-how. For example, investigating businesses within an industry, you're already familiar with can give you an advantage since you’ll understand current trends, potential challenges, and possible opportunities.
Ask yourself a few questions to get clear on what type of business would be a good fit for you:
What are your skills and interests?
What is your ideal business size and location?
How much would you want to change an existing business?
How much time and energy are you willing to commit to the business after you buy it?
Is there an opportunity to bring your specified skill set to an existing business so it can go to a new level?
Running a business requires a broad skill set. Be sure to look for a business where your ability to optimize can increase efficiency, improve quality, drive down costs, and increase overall profitability.
What should be reviewed before deciding to purchase a business?
Once you’re clear on what type of business is a good fit for you, you can search for available businesses that meet your criteria. Before finalizing a purchase, however, it’s critical to complete a thorough evaluation of the business you’re considering acquiring. Be sure to assess the following:
Why is the business owner selling the business?
An important question to ask early on in the process is why the business is up for sale. Perhaps the owner wants to retire, relocate, or move on to something new. However, there could be less favorable reasons why the owner is looking to sell. Here are a few things to evaluate so you fully understand what you’ll be up against should you buy the business:
Is there a loss of business to a strong competitor?
Are there any location issues?
What are the existing business debts (if any)?
What kind of reputation does the business have?
Before purchasing a business, be sure you understand as much as you can about their successes, failures, challenges, and future opportunities.
Performing due diligence.
When buying a business, it’s imperative that you do as much research as possible so you don’t run into any costly surprises down the road after the sale is final. Due diligence gives you a chance to perform a deeper dive into the inner workings of a business, allowing you to avoid common mistakes that can come with purchasing a business. When completing your due diligence, be sure to:
Investigate the business’s financial position.
Collect and review business documents such as licenses, permits, and existing contracts.
Evaluate zoning laws and environmental regulations.
Understand the price and value of the business.
If performing due diligence feels like an overwhelming task, partnering with a business broker may be your best option. Their experience with buying and selling businesses and knowledge of the market can make them an invaluable asset in the process of buying a business.
When is the best time to buy a business?
Ultimately, the best time to buy a business is when you are ready and when the business for sale is a good fit for you. Good business opportunities that meet your specific criteria are often challenging to find.
Remember that the timing will never be perfect. Still, by evaluating your financial situation, getting clear on what type of business is a strong fit for you, and completing a thorough review of the business up for sale, you stand a much better chance at buying the best business for you.
Need advice about businesses available in your area? Our business advisors are a great resource when you are interested in connecting with a Sacramento business broker. Contact us today to learn more!