Buying existing businesses may be risky.

What are the fundamentals of buying existing businesses?

Be careful when buying existing businesses; they might look good outside, but…Buying an existing business can be a great thing. But the process can be daunting, especially if you’ve never been in business. Or you are buying a distressed company in a drought or a poor location. Buying an existing business can be easier than setting up a new one.

As more large companies downsize, robotics and other new technologies replace employees with computers, and critical jobs are outsourced, literally millions of people, many in their 40s and 50s, are looking for new career opportunities. Many of them are thinking seriously about buying an existing business. 

There are no guarantees of success in any form of small business, and even though an existing business might seem to offer more security, it is still a business venture with many of the same risks inherent to any other business venture. Risks must be fully understood and appreciated.

Most people buy a small business rather than start one for the established infrastructure and ongoing cash flow. They also buy existing franchises for similar reasons. They usually come with seller agreements and a proven system of what works and what doesn’t.

The information disclosed here should only be used as a guide. Consult your business and legal advisors for appropriate information for your community or country.

Beware of sellers.

If the seller makes the deal seem too good to be true, it probably is. Beware of sellers keen to close the deal quickly or give in too easily to your first offer. Take verbal offers as a guide; never rely on them.

When leasing a business, leaseholders with an excellent location can offer the company an excessive premium. Today, your business can be located anywhere.

Inadequate inventory and debtors. It will be essential to ‘age’ the inventory and the debtors. Ensure there is no ‘dead’, obsolete, or excessive stock. All plant and equipment are in good working order and appropriate to the work needed. Be careful to identify slow-paying debtors and bad debts and discount accordingly. Sometimes, the seller will retain their outstanding debtors and pay up all outstanding creditors.

So, you’ve decided that buying existing businesses is your best option.

Before you make an offer, complete preliminary ‘due diligence’ to ensure the business has no significant problems. Ask yourself: “If the business is as wonderful as they make out, why are they selling?”

The first step is to create a one-page action plan. This plan should include setting goals for the proposed business and noting the actions you will need to take. 

Keep the plan simple to communicate your thoughts to family, supporters, and possible financiers. Once you have completed it, post it somewhere you can see it regularly. When buying an established business, the goals and actions should be on everyone’s mind.

Quotable quotes.

“I see many a disappointment when people jump into buying existing businesses based on their emotions. If you think you will be too emotional, seek advice to give you objectivity and perspective”. Peter Sergeant

“Too many people never connect with their true talents and therefore don’t know what they are capable of achieving”. Ken Robinson

“Business is not about money. It’s about making dreams come true for others and yourself”. Derek Sivers