Buying an Existing Business? Don’t Sign Until You Analyse These 4 Factors

Buying the right business can yield a significant return on investment and help entrepreneurs advance in their careers. Unfortunately, many businesses are purchased without adequate research to understand the risks associated with a prospective acquisition. 4 factors that should be analysed carefully before purchasing a business:

1. Market Forecast

The rapid evolution of technology in the modern world can make the market positions of businesses obsolete overnight. Prospective buyers must carefully evaluate forecasted market performance by conducting extensive research. Buyers should expect sellers to disclose historical financial information to ensure that business finances are healthy enough for effective performance in the future marketplace. Buyers who project that a business could experience financial difficulties should demand a reduced price that accounts for potential losses.

2. Basis of Competition

All businesses are subject to competitive realities that can undermine sustainability. Buyers considering a business should evaluate the competitive landscape to understand how competitors could impact operations in the future. It is important to study local competitors carefully if a business is primarily dependent on its geographic location to attract customers. Buyers should also conduct research to find new competitors who might be entering the marketplace. A thorough evaluation of the competitive landscape can reduce risks and help prospective buyers understand the competitors that they will face after making a purchase.

3. Reasons for Selling

Unethical business owners often attempt to sell their businesses before incurring projected losses. Unfortunately, it may be difficult for buyers to identify projected losses because there is less information available to outsiders. Prospective buyers should always demand that sellers disclose why they are looking to sell their business. Some situations may require that they establish and apply for basic bank accounts as escrow to assure that the seller will keep their promises. Pursuing a seller in court can be challenging and costly, so buyers should carefully evaluate a seller’s motives before considering an acquisition.

4. Management Skills

Some businesses require technical skills for effective management. Prospective buyers who lack the skills necessary to make good decisions for the business could experience significant losses. It may be necessary to partner with another buyer to acquire the skills necessary to keep operations running smoothly. Sellers are often willing to assist buyers with daily operations for a designated period of time to help their former business transition to new ownership. Buyers should always ensure that they possess the skills necessary for managing a prospective business before moving forward with a purchase.

Moving Forward

Acquiring a new business is an opportunity for entrepreneurs to grow and advance their in careers. However, purchasing a business requires careful planning to realise success. Ensure that adequate research is conducted before making a purchase to reduce the risk of losses.

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