Choosing the Right Business for You as a Buyer?

Buying an existing business can be an excellent path to entrepreneurship and business ownership. Instead of starting something completely from scratch, you get to take over an up-and-running operation with an established customer base, brand recognition, cash flow, and processes already in place.

However, not all businesses are created equal, and choosing the wrong one can lead to a lot of headaches, financial strain, and potential failure down the road. To avoid getting in over your head, it’s crucial to carefully evaluate your options and find the brokers to sell your business

that best aligns with your goals. 

Define Your Goals and Priorities

Before you even start looking at potential businesses, take some time for honest self-reflection about your reasons for buying a business and what you hope to achieve. Ask yourself questions like:

• Am I hoping to be my boss and gain more independence?
• Do I want to take an existing business to new heights through growth and expansion?
• Is my primary motivation to build wealth and maximize profits for an eventual sale down the road? 
• Will I be an active, hands-on owner or do I want something requiring less day-to-day involvement?

It’s also wise to get clear on your priorities regarding factors like:

• Income/cash flow needs: Do you require steady, high earnings right away or are you able to start smaller?
• Hours and lifestyle: Do you want a traditional 9-5 type schedule or is more flexibility important?
• Growth potential: How much opportunity for future growth and scalability matters to you
• Interest and passion: Should it align with your interests or just make financial sense?
• Ownership style: Do you want to be a solo owner or open to business partners?

There are no right or wrong answers, but getting intentional about your specific needs and wants will immediately start narrowing your scope.

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Understand the Broad Industry Landscape

Analyze the overall health, outlook, and competition level of the industry you’re looking to enter. Ideally, you want a sector that’s stable and growing, with increasing demand and consumer trends working in your favor.

For example, industries like healthcare, technology, childcare, and home services have very positive trajectories based on demographic shifts and societal needs.

It’s also helpful to research how saturated the market is in your specific area, as that impacts competition for customers and profitability potential. Pinpoint industries that have attractive niches are still available.

Don’t ignore potential risks and downsides of the industry either. Are profit margins tight? Is it heavily impacted by economic cycles or interest rates? Does it have high overhead and staffing needs? Be realistic about challenges. Another consideration is the industry’s overall online footprint and virtual presence. If it requires deep digital marketing skills and online ordering/services, that’s an additional learning curve and expense unless you already have that background.

Evaluate Specific Business Financials and Operations

Once you’ve narrowed down your industry focus, it’s time to start looking at individual business listings/opportunities that fit within your criteria and budget. Here are some of the key things to evaluate for specific businesses:

• Profit and revenue performance: Look at detailed financial statements and tax returns from recent years for trends. Is revenue growing year-over-year? Are profit margins healthy for the industry? What is the cash flow situation?
• Customer base and retention: Understand the number of customers, their average spend, and the rate of new acquisitions vs departures. A high churn rate is very concerning.
• Pricing model and differentiation: Is their pricing strategy in line and competitive? Do they offer anything proprietary or unique, or is it a commoditized product/service?
• Location and facilities: For retail, restaurants, etc, make sure the location and physical space are ideal and visible. Good accessibility and parking can be make or break. 
• Staffing and company culture: Assess the number, quality, and retention of staff/employees. Major turnover is very disruptive. Get a feel for the energy and company culture.
• Brand equity and reputation: See how established their brand and reputation are within the community. Good standing and loyalty offer huge value versus starting from scratch.
• Systems and processes: Well-documented systems and processes make for an easier transition. Reinventing the wheel from day one is challenging.
• Opportunities/Risks: Every business has positives to amplify and potential risks to mitigate. Weigh these factors through a diligent analysis.  

Request a comprehensive review of all financial documents, supplier/vendor info, company processes, and business plans from the current owners. It may help to enlist a business sales broker, consultant, accountant, and/or lawyer to assist in your due diligence analysis.

Determine the Right Acquisition Approach

With a specific business target in mind, the final step is determining the best method for actually acquiring and transitioning into ownership. Two common paths include:

• Buying an existing franchise location

For those who want to hit the ground running with a proven business model and nationally recognized brand, exploring existing franchise re-sale opportunities can be a great option.

All the systems, training, suppliers, marketing, etc. come pre-built with a franchise. It allows you to focus purely on executing versus inventing from scratch. Buying an existing location often means built-in cash flow too.

However, you have less control over operations and strategy since you must follow franchisor rules. It requires continual franchise fees paid to the parent company. Also, franchise re-sales may be costly upfront to pay the previous owner for their ownership stake, equipment, inventory, and other equity.

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• Acquiring an independent business

If you want more control to put your entrepreneurial stamp on the business, then pursuing an independent business acquisition is likely preferable. Basically, you get full flexibility to renovate, expand locations, re-brand, change operations, and re-invent the business model to align with your vision. However, all that autonomy also means more risk since you don’t have a proven system.

There’s also no built-in supply chain, training programs, etc. so you have to create everything yourself or hire experts. The upfront cost to buy an independent business outright may be lower, but growth capital and resources will be more limited versus a franchise.

Whether franchise or independent, plan for a lengthy transition period where you receive training and gain a deep understanding of every facet of the business from the current owners before they exit.

Final Thoughts

Buying an existing business requires doing your homework to find the right opportunity that checks all the necessary boxes for your goals, experience level, and financial situation. Be patient, and diligent, and get experts involved throughout your search. 

At Sell My Business, we believe in personalized service. Your business is unique, and so are your goals. Ready to take the next step towards selling your business for top dollar and quickly? We are just a call away!