Why Should I Buy This Business?
“Be your own boss!”
“Why work for someone else’s profit?”
“Build equity and your legacy!”
You’ve heard it all before – why you should buy a business and wear the crown of entrepreneurship. But once you’ve chosen to go down that path, how do you decide which business you want to buy?
Can I Trust What I’m Looking At?
Compare the Income Statement for the business year-to-year for at least three years. Are there dramatic changes that can’t be explained? Is there a large “Misc.” or “Other” line item? Does it raise more questions than answers? If you have difficulty understanding what you’re looking at, ask for help! You don’t buy a used car without popping the hood; if you don’t understand an engine, you ask a mechanic you trust. Business Brokers analyize Income Statements regularly and are well versed at identifying anomalies and trends.
How Strong Are the Intangibles?
What are goodwill, systems-in-place, & customer loyalty worth? Every industry has its metrics, but always check employee turnover. If there are a significant number of long-term employees, you know it runs smoothly and you’ll have the help you need; if there are a lot of new faces, take a deeper look at how the management team functions. If there’s a problem, can you be the solution?
Can It Justify the Price?
Just because you can afford the asking price doesn’t mean you should. Understand how the business will buy itself; will it generate enough income to re-invest in capital, cover debt, and provide you a salary? Even if you’re a cash buyer with no need of a commercial lender, ask a loan officer to look it over; if they don’t see the value, what should you be offering?
Is It Right for Me?
If what you bring to the table is redundant, then your salary is an unnecessary burden on the business. Ideally, your strength – whether that’s sales, managerial oversight, accounting, or something else – fills a need in the business. Like any good hire, your ability and energy should bring more to the business than it pays out to you in salary.
These few things – confidence, proper value, and a decent match – will help you avoid buyer’s remorse. It’s hard work, but being the owner of your business can be one of the most rewarding & thrilling experiences of your life. Choose wisely!∞