4 Important Things to Look For When Buying a Business

When it comes to buying a business, there are four things you should look out for that will greatly improve the chances of your purchase (and future operation) of the business being a success.

Keep an eye out for the following to ensure smooth sailing on your new venture.

1) Solid or Improving Financial Performance, Year over Year

You want to buy a business with a solid, or upward trajectory (even better). Review the financials in depth with your business broker and accountant, and get a clearer idea of how things are looking in the business in question.

There may be an exception to this rule – strategic buyers – who may be looking to acquire a business in the same industry as their existing business, due to acquiring clients, strategic location, certifications, machinery or other purposes, where a lower price can be a discount for them.

2) Translatable Skills

If you worked as a mechanic for years, you wouldn’t want to buy an electrician’s business. This is an extreme example, but in other words, just make sure the business you’re buying doesn’t have some very technical or difficult skills required, not in line with anything you’ve been trained in.

Once again, another exception – if there is someone on the payroll with these qualifications and licenses, then only managerial skills will be required. However, even in this instance, being educated in the type of business is a big leg up.

3) Reasonable Overhead, Including Rent (If Not Purchasing the Property)

If you’re buying a barber shop, and the rent is $10,000/month, that’s a lot of haircuts you’re going to have to do in order to just cover the rent. And if it’s a slow month? You’re going to feel it.

Make sure your monthly expenses are reasonable, related to the income and type of business. For instance, a manufacturing company with a massive warehouse would have a high monthly rent, but it’s understandable, and with steady or improving performance year after year, it’d be a worthwhile risk.

4) Long-Term, Knowledgeable Employees and Preferably a Manager In Place

Employees are the greatest assets in the company you’ll be buying. Buying a business with employees who are satisfied with the work – and making sure to keep those main things in place that have kept them happy – will ensure smooth operation moving forward, and invaluable support when making the transition and getting your bearings.

Having a manager in place will help even further, as someone will be able to help guide and make bigger decisions at first, while you learn the business you purchased.

Other Considerations When Buying a Business

There will be many more questions and concerns that come up during the business buying process, for instance, if the lease is transferable, lease terms… many things.

It’s highly recommended you consult with a business broker in order to help guide you through the process, but keeping these things in mind will ensure you purchase a business with the highest chances of continued success.

Who We Are – Capital Business Solutions is a full service business brokerage firm connecting sellers of businesses with qualified, capable buyers and acquisition specialists around the world.