Thinking About Buying a Business? Do Your Research.

Are you thinking about investing in a small business? Whether you want to buy an existing business or build one from the ground up, how do you know when is the best time to buy? Here are a few steps to take when deciding whether to jump in with both feet.

1.  Determine what business or industry you would like to enter.  When deciding to become a small business owner it is important to keep a realistic view of what you can and cannot do. If you want to run a heating and HVAC repair company, can you repair the systems too? What happens if someone is sick? Will you be able to step in or will you lose all appointments for the person that day? Determine what will work best with your skills, time and patience. Passion is always a plus!
2. Research.  How has this industry performed in your geographic area in the last year, five years, 10 years? Understand what regulations affect this business, what the average investment is, how long these ventures usually take to cash flow and other pertinent information. Assess the labor pool, cost of doing business and successful business models. The more information you have going in the better prepared you will be when things don’t go exactly according to plan.
3. Talk to the bank.  Small business loans are the primary way entrepreneurs finance new ventures. Talk to your bank, other banks, credit unions and even independent investors to determine if the rates are acceptable and financing manageable. Businesses are not free and turning a profit can take time so don’t just borrow the bare minimum; by borrowing extra you give yourself cushion for the lean months. Some experts recommend up to a year of savings to support you and your family while the business takes root.

The financials are truly the first steps to determining whether to buy a business. Once you have completed the first three steps the process really begins to move forward; finding a seller, proposing a sale and closing can take 6-12 months but the more you go in with, the faster it can move.

As you move forward with purchasing a business keep in mind the due diligence. Take time to audit every aspect of the business, determine the growth opportunities as well as the investment of time and money it will require. These factors will help you determine if a business is a good fit financially. Being a small business owner is challenging even if you already know the industry,and jumping into a completely foreign venture may overextend so be aware of these limitations.

Knowing when to buy a business is not an exact science. Personal circumstances, the economy, financial opportunities and industry statistics can all provide valuable insights into the best time to buy but there is no formula to build a perfectly successful venture. Each investment is a risk, so make it a calculated one. By researching and doing your due diligence you can be that much more confident in your decision to purchase or forego any given opportunity.

Should you have more questions about buying a business or are interested in learning more about available businesses visit the Seller Resources section of the Sunbelt Network website.