Buying a business can be one of the most exciting endeavors of your life, but also one of the most challenging.
We’ve noticed that these two things can often go hand in hand.
But, buying a business involves a unique few challenges: from accepting a few years of negative cash flow, to investigating the bones of your prospective new business, there’s a lot of due diligence to do.
Luckily, our financial experts at The A Firm have over one hundred and fifty years of combined experience in helping businesses succeed.
So, we’ve curated the top three things you’ll need to consider when buying your dream business to ensure your purchase – and future operations – are successful!
Remember: You May Operate At A Financial Loss For Two To Three Years
This may not be news you’re happy to hear: you will most likely not recoup your initial investment until after at least two to three years of operation.
This is typically because the previous owner will know the exact value of the business and how much yearly or monthly revenue is earned.
They will likely calculate a price that will be the sum of 2 – 3 years worth of revenue, in order to make the sale worthwhile to them.
So, manage your expectations and ensure you have enough capital saved up to weather a few years of negative cash flow.
Additionally, you’ll want to come up with plenty of improvements and strategies to increase revenue. This will decrease the time spent operating under negative revenue.
How Experienced Are You In The Industry You’re Buying In?
Most owners who are selling their business will have built it up over a lifetime of hard work, mistakes and overtime.
Meaning that they’ve typically had 30-40 years of experience in that industry.
This means they have deep, intricate and exclusive knowledge that helped them run the business and get it to where it is today.
Unless you’ve also been in the industry for that long, you may face challenges without that same knowledge and experience.
The good news? There are plenty of boutique business management agencies for every industry and niche. They’ll supplement that knowledge and experience in return for a small fee.
Ask Yourself: Why Is The Owner Selling The Business?
Now, most business owners who are looking to sell are doing so for legitimate reasons.
They may want to sell in order to enter retirement, for example, or are simply tired of the immense workload often associated with a leadership role.
But due diligence requires you to always ask that awkward question: “why are they selling the business?”
Although it’s rare, the reason may actually be because the business is not doing well or that the industry is expecting a downturn of some sorts (such as COVID.)
The last thing you want to do is pick up a business that might start failing soon after your purchase.
So, always get to the bottom of why the owner is selling, and then do your own research on the fundamentals and data of the business to determine if it’s viable to pick up.
Or, ask a registered accountant like The A Firm to do an analysis of the business and its finances for you!
How To Leverage An Accountant To Get The Most Out Of Your Purchase (Or Sale!)
Now you’ve got all the knowledge you need to successfully navigate the – sometimes difficult, sometimes amazing – landscape of business buying.
But, remember that bit we mentioned about taking on specialist help?
Well, there’s nobody more qualified to help you get your new business cash flow positive than The A Firm accountants and bookkeepers!
Book a call with us today to learn how we can help your business!