Is that business worth buying? Four must-ask questions
By Julian Harlow
While you may never find the perfect business at the perfect price, there are a few questions you should ask before buying.
For those looking to turn the dream of running your own business into a reality, purchasing an existing business has many attractions. Taking over a profitable enterprise can be less daunting, particularly if it is your first step into being an owner, while an underperforming business can have a strong allure for entrepreneurs who see its true potential.
If you are considering buying a business, its value should reflect how well that business fits with the goals you have in becoming a business owner. As there is no single formula for determining that value, ask as many questions as possible - both of the business you are considering acquiring and of your own expectations. A good place to start is with these four broad questions.
1. Why are you attracted to the business?
The first thing you need to determine is why you want to own this particular enterprise. Are you being realistic about what is involved in owning and running the business? It is easy to let enthusiasm blind you to your ability to supply the time, effort, funds or expertise the enterprise may require. Speak to owners of similar businesses, particularly those not trying to sell, in order to gain an unvarnished version of what it's like to run a business in the sector.
2. Why are they selling?
It is up to you as a potential buyer to satisfy yourself that you understand why the seller wants to exit. How forthcoming have the sellers been with information about the business and what aspects have they omitted? Knowing how long they have owned the business and what their future plans are can help you understand the condition of the business and what issues it might face.
3. Have you conducted due diligence?
Are you satisfied that you have a good understanding of the business, including its positives and negatives? Does the business own its premises and equipment? Have you viewed accounts for the business from recent years? Are there loans, debts or other liabilities that need to be serviced?
4. Are you prepared for the worst?
Before committing yourself to taking on a business, you should put some thought into what you would do if it simply doesn't work out - an exit strategy. Is there a market for similar enterprises, or at worst how much could be obtained from selling its assets? If you can honestly think of the worst outcome and decide that it is a risk worth taking, you are not only less likely to regret your decision but will be better able to deal with the inevitable rough patches that come with taking over a business.
The aim of asking these questions is simply to ensure that you do not end up buying a business that puts you at a disadvantage. While you may never find the perfect business at the perfect price, you can make sure you're not taking on more than you were expecting.