There are many factors to consider when choosing the right business to buy. Ideally, you choose a business in a growing industry for which you have passion. Other factors such as your location, expertise, and budget to purchase all play an integral role as well. Below we discuss the most useful tips for deciding which business you should buy. Specifically, we discuss three different phases during your business search.
Phase 1: Consider The Type of Business You Want to Buy
You should first consider the industry you want to enter and the type of business within that industry that you want to purchase. In doing so, you should consider your skills and experience, location preference, and budget.
Skills and Expertise
The best place to start your search for a business to buy is within your own industry. In this case, you already have the expertise necessary to take over the role, which limits the amount of time the seller will need to spend to assist with the transition, providing you with negotiation leverage as you are an ideal buyer.
However, many buyers are interested in entering a new industry in which they do not have much experience. This is usually the case if the buyer has a passion in a certain area and/or sees an industry that is trending in the right direction and wants to capitalize on the opportunity.
In either case, it is important to at least ensure your skills match what is needed for the ownership role. For instance, if you have excellent leadership skills and understand how to provide a positive work environment for employees, then you may thrive with a company that has past issues with high employee turnover and other employment-related concerns.
Location Preferences
Your location may affect the industry you enter. For example, a surf shop will perform much better in San Diego than it would in Ohio. Of course, if you intend to be very involved with daily business operations and go to the office each day, then you want to limit your search to the general vicinity of your home. Some industries have less restrictive location requirements. For instance, a technology and/or software company that does not sell in-store has more flexibility to move its headquarters than a restaurant.
Budget and Purchase Price
Lastly, you should consider your budget. Some industries cost far more to enter than others. For instance, a manufacturing company with expensive equipment and facilities will likely cost far more than a restaurant with few tangible assets. Your budget may also affect the size and age of the company you buy. A high budget allows you to make competitive offers for larger, more established companies that provide more financial certainty, whereas a more limited budget may mean taking on a smaller company with more risk.
Phase 2: Review Available Businesses With Your Business Broker
The next step is to review a list of potential businesses that match the criteria you established in phase one. Keep in mind, in phase one, we eliminated most businesses by narrowing down the industry and sector within the industry. In phase two, you should choose a business broker to assist you with the buying process and (along with your broker) review a list of potential businesses within your industry and budget.
Choose a Business Broker
A business broker can help buyers find businesses to review. In fact, they may even represent sellers who have a business that is ideal for them and available for a fair asking price. In other cases, they can utilize various private channels to find companies within relevant industries that are available for sale. Be sure to choose business brokers who are experienced and specifically work with buyers.
Review a List of Available Businesses
Your broker should be able to compile a list of businesses that match your criteria. From there, you can review the details for each business you consider and narrow your list down to two or three possible businesses to purchase.
Phase 3: Establish Your Business Goals and Long-Term Vision
What do you hope to achieve from your business sale? For many, this involves generating as much profit as possible through enhanced marketing approaches, innovative and proprietary technology, and an improved workforce. In other cases, the buyer may simply want to have predictable and sustainable profits and growth over time with little risk and enjoy more time away from the office. Whatever your goals and vision may be, it is important that you establish them before you buy.
Setting Your Business Goals
This is an important step to take before you make the final decision to purchase. In fact, you may even benefit from setting your goals in phase one. Goals are often focused on fixing existing concerns with the company, which may even be why the owner has decided to sell. For example, if the industry has changed since COVID and the company has failed to reach its pre-COVID financial numbers, then the focus may be on modernizing the business operations and product and service offerings to enhance the company’s profitability.
Establishing Your Long-Term Vision
How involved do you want to be with the company’s daily operations long-term? Do you intend to sell the company if the valuation significantly increases from what you paid? Will you still be as passionate about the industry 10 years from now as you are today? These are the types of questions you will need to answer when you establish your long-term vision for the company. Establishing your long-term vision can help you feel more confident in your decision to buy.
Sigma Mergers and Acquisitions Helps Buyers Find The Right Business
Are you searching for the right business that fills you with passion, profitability, and enjoyment each day? If so, then contact the business brokerage team here at Sigma Mergers and Acquisitions. We work with buyers to ensure they choose the right business for them and receive a fair and equitable deal.
