5 Recommended Criteria to Consider Before Buying A Business

Written By Business Takeover    Aug 04, 2021

According to the statistics, more than half of small companies fail in their first year, and more than 90% become insolvent/ bankrupt and wind up within five years of starting up.

Are you ready to take the risk? 

A feasible alternative for individuals seeking to start their own business but who do not have a concrete business idea to work with is to purchase or take over an existing business. Buying a business is both "effortless" and cost-effective, and it reduces the level of risk faced compared to starting one from the ground up.

What should one take into consideration as they dip their toes into the entrepreneurial stage?

Go For The Right Business

Not every business opportunity on the market is a good fit for one's skills and interests. Evaluate to find out what you are passionate about and committed to. Does this sound like a business you'd be interested in starting and or operating on your own? Will you have the capacity and capability to grow the business? Do you have a competitive nature? 

As you can see, your company should be tailor-made for what you have to offer in terms of skills and abilities. As statistics have shown, the odds are not in anyone's favour. 

Obtain Information and Data About The Business

When you find a good match, you should start putting together your valuation team before moving forward with the process.

If the seller of a business is willing to discuss specific reasons that compelled him to sell the company, a buyer should always conduct further investigations. Most firms and companies appear to be perfect on the surface, but severe problems and underlying issues often accompany it. 

Having stated that, there is never a good "excuse" for selling a gold laying goose. Avoid spending too much time trying to retrieve a good explanation from a seller of a business. 

Business Location and Profitability

Physical location with good human traffic is hard to come by these days. Nevertheless, your products and or services need to be seen and heard; if your business location is inconveniently located or inaccessible, the general public might not feel the urge to visit.

Also, it may not be a good practice or idea to buy a business in an area where too many businesses are very similar to yours. Competition can be a double-edged sword; it may bring the crowd and traffic; however, it can also affect the overall profit margins. 

Existing Accountabilities

It is vital on your part as a business buyer to verify whether the business owes any debts. Such unpaid debts or nonpayment may indicate an unstable and unsustainable business model and structure. 

The last thing anyone can wish for is having a group of debtors chasing after old and uncleared debt, which may result in difficulties for the entire business operation.

The Customer's Feedback

Evaluate the feedback received from previous customers regarding the products or services provided by the company. It would help if you weighed in the percentage of the positive reviews to the negatives. The number of dissatisfied customers may indicate whether or not a business is operating competitively.

When you take over an existing business, you have a plethora of advantages. Still, you are required to be cautious of the potential drawbacks. Do not spend time and money on a business that will almost certainly fail in the foreseeable future.