According to the 2018 Small Business Profile released by the US Small Business Administration, there are over 30.2 million small businesses operating in the country. It is estimated that the majority of these businesses will change hands throughout their lifespan. Given the sheer number of available business entities in the US, buying and selling a business has become quite common.
To many entrepreneurs, buying an existing business allows you to skip the tedious paperwork and legwork required to kick start a business. Once you’ve acquired a business, you just have to sustain the momentum and infuse new innovations to push the business towards achieving your goals.
It might seem simple and straightforward but in reality business acquisitions can be quite complicated. If you think this is a surefire way towards being a successful entrepreneur, think again!
Taking over a business is a major decision that comes with benefits and risks. It requires a thorough study and research – a lot of it.
Cress Diglio, a Florida-based business broker, considers it as a long and complicated journey. He emphasized that for a business acquisition to be successful, you have to avoid the pitfalls that many frustrated entrepreneurs have encountered.
Here we take a look at the essential Do’s and Don’ts every prospective business buyer should bear in mind.
Choose the right business:
Running a business requires your focus and attention. Make sure to choose a business that is close to your heart. Trim down your options to businesses that you are genuinely interested in, passionate about, or experienced.
Although you can venture out in an industry that is completely alien to you, it would be easier if you focus on something you’re familiar with or knowledgeable of. Having insights about the products or services, business operations, customers, the market, and competitors is vital in formulating new ideas and innovations.
Talk with a business broker:
If you are unsure about how and where to start your journey, consider working with a reliable business broker. A broker can help you discern the right business that will suit your interest. You can also take advantage of their wide networks, thereby giving you plenty of options.
These professionals will help you throughout the journey from pre-screening down to negotiating and closing the deal.
Don’t jump into hasty decisions:
While looking for potential businesses, you can find deals that seem very lucrative and profitable at first glance. As an entrepreneur, you might get over-excited when you see such deals.
When you find such deals, proceed with utter caution as it might give you a headache later on. Hold your emotions and do your homework. You want to evaluate not just the deal but the entirety of the business: check the financials, the reason why it is being sold, the market conditions and trends, etc. Be wary of businesses that are presented as very profitable as they might have undisclosed serious issues.
Set a buying limit:
Before you start looking for a business, set a maximum amount that you can gamble into a new venture. As mentioned above, the business acquisition is a major financial move – it’s a sort of gamble.
If a business is being sold well beyond your budget, don’t be ashamed to turn down the deal. A common pitfall of entrepreneurs – being overly excited to consummate the deal instead of knowing the real value of the business. Remember that a business is not always profit, there’s always the possibility of losses. So, don’t spend beyond your limits.
Don’t simply pay the selling price:
Negotiation is a crucial part of any business acquisition process. You don’t just pay what the business seller is asking for.
Once you have a prospective business, know everything about it. Do comprehensive market research. This should help you renegotiate the deal. Don’t rush into buying a business in bargain. Take your time so you’re paying the right price.
Regardless of the business, you are planning to buy, be very careful about every aspect of the business. Due diligence is crucial to protect you from potentially negative deals and save yourself from losses. Most importantly, following these Do’s and Don’ts should also help you ensure a profitable and successful business.