Choosing the Right Business
A few years ago, we conducted a survey asking prospective business buyers what is their single biggest concern and gave them a choice between overpaying for a business, not uncovering all of the problems, choosing the right business, or financing the purchase. A resounding 74% chose buying the right business.
Keep in mind that the majority of buyers have never owned a business and so they naturally either consider a type of business they think they would like to own (i.e. “I’ve always dreamed of owning a restaurant”), or, they rely on selecting one within a familiar industry. Unfortunately, both of these tactics are wrong.
The single most important factor to consider is what type of business will flourish from your strengths and not suffer from your weaknesses. In other words, whatever it is that you do best (sales, marketing, operations, logistics, etc.) has to be the single most important driving factor of the revenue and profits of any business you consider purchasing.
Simply because a business is doing well or poorly, does not mean that its status will remain that way under a new owner. There are countless struggling businesses run by the wrong people that can represent wonderful opportunities. Similarly, a good business that is taken over by the wrong person will decline rapidly.
This is not the time to hallucinate or embellish your core strengths. Neither should you underestimate your weaknesses. Remember, you are going to be the boss – you need to drive the train. You can and will hire people for many tasks but the responsibility to sustain and grow the business is on your shoulders.
Step one is to take a brutally hard look in the mirror and compile a self-evaluation listing out what you are best and worst at doing. It can be helpful as well to ask colleagues for their opinion. They do not need to tell you whether you should be buying a business, rather, you want their input on what they believe are your professional strengths and weaknesses
Step two is easier. Luckily, the Internet has been a huge asset to find businesses for sale – the choice is enormous. Spend some time familiarizing yourself with businesses listed for sale and the various metrics and ratios.
- 1. Identify three to five categories of prospective businesses (you may want to first eliminate what you don’t want).
- 2. Contact and visit with at least two sellers in each of the categories you initially identify.
- 3. After you’ve met with 10 sellers, your ideas will begin to crystallize. You will eliminate some categories, and start to learn towards others.
- 4. Repeat the exercise if necessary.
- 5. Ultimately, this strategy will allow you to keep narrowing down the choice.
If, for example, you find a particular industry of interest and most importantly, determine that your best strength marries perfectly with that type of business, you can also do some direct solicitations of those types of entities.
When you find an attractive business within the preferred sector, you can then focus on the details and work towards getting a deal done.
So remember, the key to buying the right business is to first determine what type(s) is right for you. Once you do that, finding it and closing the deal is relatively easy.