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Inspiration

What to Consider Before Buying A Business

by codegrape / June 8, 2019

Having your own business and being your boss is everyone’s idea of success. Small business owners are of another breed: entrepreneurial, won’t take no for an answer, and will gladly sacrifice whatever it takes to make it work.

Before you get too excited and jump in with both feet, there are a few essential considerations to make.

Secured financing

A major consideration should be your capital and how you are planning to afford to buy a business. The initial costs in taking over an existing business can be hefty, so it’s important to have a financing plan going in rather than risking it with no fall-back plan or safety net and ending up in a bad financial situation.

Planning and saving up over the long term, possibly from another business venture, is the smartest and most financially stable way of going about buying an established company. With proper budgeting, saving, and maybe even investing, you might not need to close the gap with other means of funding. Speaking to a financial advisor can help you here; they can assist you in creating a budget and savings plan to suit your needs and goals and help keep you on track.

If the long-term savings isn’t going to work for you for whatever reason, there are other ways to acquire funds quickly:

  • Get a bank loan or loan from a financing company (but be wary of high interest loans!). Make sure you are able to make your payments on time and in full or risk big penalties
  • Secure investors
  • Get a home equity loan against your house

The operating costs

Perhaps you have the funds secured to buy the business, but do you have enough to maintain it? If the company is doing well and is financially healthy, this makes accounting less stressful. If it isn’t as financially stable as you would want it to be, you should consider how you’re going to keep the lights on and make a solid plan. You know you can take your business to the next level and have it be self-sufficient and profitable, but that does take time.

Consider some cost-saving initiatives that won’t harm the business, but will put some extra money in the company’s pocket. For example, if your equipment breaks and you need to get it replaced, you can rent a computer in the short term from an expert company like Smart.uk.com instead of buying new right away. Hire freelancers for quick jobs instead of hiring full-time staff and laying them off when they are ultimately no longer needed. There are so many ways to cut costs for small businesses that won’t cause headaches.

The marketing

Small businesses rely on good marketing to get clients and increase brand awareness, and with the advertising game constantly changing in the era of social media, it can be hard to keep up. It’s wise to fully understand the marketing efforts that existed before you came along, and if there were any that were successful, or not. Go a step further and determine what factored into positive ad campaigns or ad campaigns that didn’t cut it. Furthermore, know if your new business has a current relationship with an agency or freelancer who does the marketing, and determine if it is a relationship worth keeping.

Why they’re selling

Above all else, you need to do your homework on the company you are about to buy in order to find out why the previous owner is selling. Are there are any issues with the building itself (like mold, leaky pipes, or serious structural damage that needs repairing as soon as possible)? Other questions to ask should include who the target demographic is if you don’t already know, what the sales system is, and most obviously and importantly, if the business is profitable or not. If you’re taking over any employees as well, it’s beneficial to know what the turnover rate is like.

All of these factors can impact your wallet up front and your business’s bottom line down the road, so they are important to think about before officially signing the deal. You don’t want to shoot yourself in the foot and start your new business massively in debt that you can’t recover from, so do your due diligence and determine all the risks before buying.

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