So you’ve accumulated the knowledge and ability to excel in your industry, and you’re ready to work for yourself. What’s the next step in your entrepreneurial journey? Buying a business is a great option if you want to be an entrepreneur without having to start from scratch. However, it’s crucial to do your due diligence before signing any deals. Here are some factors to consider when you’re in the market to buy a business.
1. Positive Financial Trends
One of the most important steps in buying a business is to analyze the company’s financial characteristics to know if it’s the right investment. Evaluate key financial indicators such as sales, profits, debt, expenses, and cash flow. They can reveal any potential red flags and anomalies. Stable earnings, return on equity (ROE), and the relative value compared with those of similar companies are indicators of financial success.
2. Industry Relevance
Do a thorough industry analysis before committing to any deal. Research the demand for the service or product that company offers, its growth potential, and the existing market competition. You need to be certain that you’re buying a strategic business that will continue to expand and thrive.
3. Properly Distributed Accounts Receivable
Most businesses provide goods or services before they invoice their clients. The money owed is called an account receivable. Accounts receivable are recorded as a current asset to offer insight into the financial condition of the company. If there is a payment delay in a receivable accounts on the customer side of the transaction, the value of the AR may deteriorate. Properly distributed accounts receivable indicate positive cash flow management and strong financials.
4. Knowledge Of The Industry
Industry knowledge of the company you want to buy is a must-have. What are the areas where you already have experience? What are you passionate about the most? For example, if you’ve spent years working in a factory, you shouldn’t jump blindly into owning a bar. Reduce the risk, know what to look for, understand fluctuations in market and demand, and know what it takes to grow. The more familiar you are with the industry and trends, products or services, and customer base, the more likely your business is to succeed.
5. Well-Trained Staff
One of the advantages of buying an existing business is being able to start out with an established staff and proven operational processes. You get to step in and lead a well-oiled machine, without worrying about onboarding and training an entirely new crew. Longtime employees who remain after the sale can provide valuable insight to day-to-day operations and how to keep things running smoothly. Customers may also feel more comfortable sticking with a business if they see familiar faces during a transition period.
Your Guide Through The Business Buying Process
Global Business Brokerage is here to guide you through the business buying process. As lifetime entrepreneurs, we know what it takes to be a successful business owner. Using our years of expertise and network connections, we’ll get you to the finish line. Schedule a consultation with us.
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