4 Important Considerations When Acquiring An Established Business

4 Important Considerations When Acquiring An Established Business

There are several misconceptions about why a business owner would choose to sell his business—a business he built from ground up.

People usually believe that either the business is going under, or there is something wrong with the business model that needs to be “fixed”.

However, nothing can be further from the truth. There could be hundreds of reasons why a business owner may choose to sell their business. The business may no longer match their lifestyle or they could just be in a stage where they no longer feel passionate about their business goals, and are looking for someone young to takeover.

However, you as buyer need to be careful when buying an existing business. There may not be anything wrong with the business itself, but if you do not understand the ins and outs, a lot could go wrong.

Here are 4 considerations to have in mind when purchasing a business:

Customers


The business you are buying should have an established loyal customer base. Establishing a customer base takes years of efforts and financial resources and this is what you will be paying for in the goodwill.

If the business does not have customer loyalty, then running it would be as volatile as running a startup and you’ll face a lot of problems with cash flows.

Operations and Employees


Building distribution networks, business processes, supplier relationships and a workforce that understands the business dynamics well isn’t easy to come by.

All the operations should be time tested and should be able to provide you with key insights in the industry. On the other hand, the business should also have a dedicated workforce that has been with the business for several years.

Product


Another key factor to consider is the product or the offerings that the business is selling.

Are they still in demand? Do they have room for innovations? Will they still be in demand after 10 years?

When acquiring a business, your focus should be more towards the future, rather than the current state of affairs.

Financing


Assessing the financial risks of the business is imperative when acquiring a business. The business should have a successful track record of healthy cash flow, revenues, profits and working capital.

The business shouldn’t be in a lot of debt because higher debt means a higher risk of solvency.

Other than these 4 considerations, you should look for businesses in an area that you know well and ensure that the company’s culture matches your style. Ask yourself whether you would be able to embrace it and bring about a positive change.

We are one of the leading commercial lenders in the country and help investors with a number of financing solutions.

If you are in need of financing, give us a call on 1-800-514-7350 or visit our website. We provide hard money loans, bridge loans, mezzanine debt and structured joint venture financing.

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