When you own a successful business, purchasing another business often seems like the next logical step. Whether you want to expand your current operations or perhaps start something in another industry entirely, examining your motivations is one of the most important things you can do before following through with such a life-altering decision.
Make Sure You Can Answer Why You Want to Purchase Another Business
People have varied reasons for wanting to buy a new business, most of which are perfectly valid. Some common reasons include:
- Buying out the competition to obtain a larger customer base
- Breaking into a new industry
- Merging with another existing company
- As a good investment opportunity
- Strong interest in the industry
After listing your own reasons for wanting to purchase a new business, take the time to reflect on whether the specific business you want to buy is a good fit for your skills, strengths, and budget. For example, would you feel comfortable in a completely customer-facing role or do you see yourself as more of an administrator? Knowing yourself well is key to avoiding buying a business that will make you unhappy to run.
If you do have a specific business in mind that you want to purchase, carefully consider its location, reputation, and current customer base before you begin serious negotiations with the seller.
Determine Your Capital and Cash Flow Needs
If your current business is financially successful, you might have forgotten what it’s like to operate on a shoestring budget. It’s always a good idea to go into the deal with as much savings as possible so you can draw on it if something goes wrong.
- What will your cash flow needs look like on a day-to-day basis?
- How much capital will you need access to for major expenditures and where do you plan to get it?
These are both important financial considerations to work through before buying a new business.
Consider Your Own Exit Strategy
While you’re in the mindset to purchase a business right now, eventually you will want to retire or sell the same business. Be sure to make your own long-term plan before signing any purchase agreement for a new business. Seeing it on paper will give you a better understanding of whether buying another business fits with your overall life and career goals.
Study the Business Beyond the Sales Pitch
Motivated sellers might exaggerate the benefits you would receive from buying a business while glossing over anything that could pose a challenge to you. That’s why doing your own due diligence is critical. As an independent business valuation firm, KGBV Advisors can assist you with understanding the history of a business currently up for sale as well as its true financial worth. Please contact us to learn more about how we represent your interests as a business buyer.