5 Questions You Should Ask Yourself Before Buying a Business

5 Questions You Should Ask Yourself Before Buying a Business

If you are looking to buy a business, there is no better way to do it than by having someone who has been down that road before. There are many different questions that you should ask yourself before making any purchase, but these 5 will get you started on the right track.

Why do you want to buy a business in the first place?

The main point of asking this question is to find out if you’re looking for a buy-and-hold investment or a buy, fix and sell. The difference between the two will have an impact on how much time and capital are required from your end before being able to turn around and resell it. If you want to buy a small business, figuring this part out is going to be essential.

The buy-and-hold investor is after a steady and reliable return on their investment. If you’re looking to buy an established business that has been around for generations, this type of buyer would be perfect because they are more than willing to put in the time and effort into maintaining it. Buyers who buy with cash or have investors will tend to be looking to make buy-and-hold investments because it is not as time-consuming.

The buy, fix and sell the type of investor wants to buy an established business for the right price so that they can turn around and resell it quickly with a significant profit margin. This type of buyer may be more willing to buy a lemon–fixing it up before selling.

5 questions you should ask yourself before buying a business

What are your long-term goals? 

Have a look at your situation and figure out what your long-term goals are. Is buying a business necessity for the goals you are trying to achieve?

If your current goal is to buy and hold, then looking at buy-and-hold investments such as stocks or bonds will be more suitable. If your long term goal involves wanting to buy an established business that’s been around in order to make use of its infrastructure and management team

How much money can you afford to invest in this endeavor? 

The level of investment is going to determine what type of buy you can do. If your investment is minimal, then a buy-and-hold strategy may be best for you to start with.

If the amount of money that’s available for investing in buying an established business is substantial, there are more options open to you–such as going into partial or full buyout situations where you act as a partner in the business.

The amount of investment will determine the buyout strategy. Pay close attention to this aspect of the deal.

What type of business do you want to buy – what industry, size, and location are you looking for?

The type of buy you want to do is going to be determined by the type of business you’re trying to buy. For example, if there’s a specific industry that you know well and are interested in, then it may make sense to buy into one of those businesses–even though they won’t always offer as much growth best for your needs?

Considering the type of business and the available deals, you will soon focus in on the right business to buy.

Now you can buy businesses that were previously out of your reach, like a corner store or an auto repair shop. If you buy these types of “low buy” businesses with good cash flow and low overhead expenses, then they’ll have more predictable profits than larger buyouts

5 questions you should ask yourself before buying a business

Who will be involved with running the business day-to-day – how much time will they have available, their experience level, etc.?

Who is going to help you run this business? Will you have a partner or are you doing it on your own? What are your commitments outside of the business?

How much time will you be able to spend on managing it each day, week, or month?

What type of experience do they have in running businesses like this one before? What about their personality – can you work with them and how well do they co-operate with others?

These are just some of the many questions you need to ask yourself.

Determining your own personal level of effort is going to tell you how successful you can be. If you don’t have lots of time, don’t buy a time-consuming business.

How can a small business community help you decide whether or not to buy a business?

A small business community generally has a diverse group of people as members. You may be able to speak with a CPA in an informal setting just to get some easy guidance on which direction to take. Attorneys are always willing to offer initial guidance in the hopes of getting the job. Other entrepreneurs who have gone through the process will be willing to offer their own perspectives.

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