Buying A Business – What, Why, When, Where & How

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There are those people who have considerable management experience in a corporate environment and want to get into business on their own. Their problem is that they do not have an idea to develop a new product or service. There is still hope to start your own business – buy an existing business. In order to accomplish this feat, you should have a solid knowledge of both the local interest in the market and the value of the specific business you are thinking of buying. Here are a few major points to consider when taking the plunge.

In a brick and mortar situation, the key concept is location, location, location. As you drive around your neighborhood, look around and see where businesses have thrived based on their location, and where you see a constant transition of businesses opening and later shutting their doors. It is obvious that you do not want to buy a business that has a key competitor right next door to you unless the product or service is exceptionally better than the competition or the demand is high enough to allow both businesses to co-exist and be profitable. As an example where this situation can work is two restaurants that serve two very different types of food. But each business location needs to be weighed on its own merits. A corner location is often the best site, but there are corner locations where no type of business can survive.

A second consideration is the value of the current owner. More than a few businesses are successful because of the reputation of the owner, and purchasing their business can be disastrous. Getting a personal endorsement from the current owner and advertising that throughout the community can be a first step towards developing goodwill. As I said in an earlier post, the owner is the company until it establishes itself through a history of quality products or services. The chances are that the current owner is close with many of their customers, so developing a rapport with them will go a long way when you take over.

Approach purchasing an existing business with the idea that it will grow with the current local economy. One simple thing to do when driving through the community is to look at how many small businesses exist, regardless of what they are doing or selling. Small businessmen tend to work together since in most cases they are competing with larger companies or franchises. If you see few small businesses or the general economy of the area is declining, opting to buy a business will be risky.

Earlier the issue of location was stressed as the most important factor in deciding whether to buy a specific business. One major consideration is timing, but this can be tricky. If the timing in buying a business is near perfect, you will see huge revenues and likely an expanding business in short order. Depending on what type of business you buy, an error in timing can have almost no impact or it could end up as a bad investment. More conservative industries such as supermarkets are places will tend to buy from regardless of the economy. Newer industries such as technology stores may come and go, depending on the success of its product lines.

Buying your own business is a considerably safer way to go because the clientele is already built in to the purchase. There are a number of factors to consider, and the best guide is honestly evaluating your own expertise in the industry and looking around to see the general business and economic environment of the area.