I have met many people that have saved enough money from their professional career and they are ready to take their business life to another level by buying an existing business.
Since this is not an easy task, I decided to spell out a few important factors you must consider if you are about to make this leap of faith to help you make a wise choice and increase your chances of success:
1. The right business should fit your personality, training, skills and passion. It is best to select a line of business that you are familiar with and have experience such as something you have done in the past maybe as a manager in a large corporation. The more you know about the business the lower your risk.
2. Consider, also, the size of the franchise business you want to get into, in terms of staff, number of locations and sales. Try to choose a smaller size in the beginning to gain control first then as you pick up momentum you could expand by buying more or opening new locations. The first few months are the most critical.
3. Search for franchise businesses for sale that match your criteria and needs. Ask friends, entrepreneurs and business brokers. Read classified ad sections of local newspapers and trade publications. Search the Internet and attend trade fairs or industry association meetings.
4. Check on the franchise business trend and direction. Read publications and review articles on the Internet to study the industry. Be on the lookout for bad press and market reviews.
5. Target the business you want. What is its reputation in the industry; with its customers, suppliers and creditors? What do they say about its customer service? Are its products or services reasonably priced? Visit a business location and observe its daily operations.
6. Find out the reason why the owner is selling the business. Is there anything wrong with the business? Why is it not successful? Is the location not conducive to the business? Is it mismanaged or not properly marketed? Are there too many competitors? Is the owner sick or just wants to retire?
7. Perform due diligence. Together with a team of consultants – a lawyer, accountant, business appraiser or broker – investigate the history, operations, assets, financial status, the competition, market and growth potential of the business.
8. Find out what are the averages in the industry. Know the numbers. Average sales, average returns, average size etc. so you can become familiar with the accounting side of the business. All business activities must be transformed and translated into numbers. The more you know your numbers, the better your selection of business will be and the higher your chances will be to beating the averages.
9. Make a purchase offer. Appraise the business according to its tangible and intangible assets. Compare the market price with similar businesses in the area. Evaluate its financial records using accountants familiar with this type of business
- Negotiate a deal. Ask for the owner to work with you for a short period to teach you the ropes and potentially carry some of the financing. This will ensure they are telling you the truth as they would not want to stay involved if they are not disclosing all the liabilities or challenges of the business.
When you consider buying an existing business, avoid assumptions and ask questions. Use the above checklist and do your due diligence and review all documents regarding the business.
Make the most use of experienced professionals such as consultants, brokers, accountants and attorneys and remember: You are buying an established business because you want to minimize your risk. So, do not take any chances!
Here is to following checklists and leaving nothing to chance!