Owning a business can be an excellent road to financial freedom.
For many people, buying a business can be the perfect option. Before deciding to purchase an existing business, there are several factors to consider so that you can find the perfect business investment.
Narrow down your interests
Owning a business is extremely time consuming. Business owners spend far more than the standard 40 hours a week working at their company. Successful business owners own companies that tap into their personal interests. Examples include:
• Specialty food stores
• Retail golf stores
• Fitness gyms
• Home decor
One of the benefits of purchasing a business that taps into personal interests is that, generally, you already have a wealth of knowledge about related products.
You may have extensive knowledge and experience with highly desired golf clubs or balls. Alternatively, you probably also have an understanding of products your potential customers will want to avoid.
Evaluate skills and experience
Having a personal interest in a potential business is not enough to build a successful business. Before deciding to buy a business, make an honest evaluation of your past and present business experience and skills.
Business owners wear a wide variety of hats to operate their business. They need to have knowledge of business accounting, inventory control, marketing, human resources and product development, just to name a few vital business functions.
For novice business owners, it can be helpful to take business courses from local adult education or community college sources. Also, the Small Business Association (SBA) offers basic business courses for individuals preparing to buy a business or who already have a small business and are looking to improve their business skills.
Consider your financial resources
Financial resources are a key part of the decision process to buy a business. Some existing businesses do not require a large initial investment. However, others, such as purchasing a franchise or manufacturing company, require a substantial investment.
In addition to evaluating readily available financial resources, it is also important to consider your credit position.
Although you may be applying for business financing from a bank or from the Small Business Association, your credit will likely be part of their decision process.
From a bank’s perspective, a new business owner means taking a risk. They will be looking for a solid business and marketing plan as part of your application. If you do not have experience putting together these types of important business documents, you can find assistance from business brokers, small business courses or the SBA.
Conduct market research
Market research is a vital aspect of buying a business. Conducting market research involves evaluating market trends to determine if there is potential growth in the business. Find out if there are new products anticipated in the future or if there are additional services you can offer customers to enhance the company you are considering.
In addition to evaluating if the specific industry is growing, you should also evaluate the saturation of similar businesses in your area. Although a potential business may be successful and growing, if there are too many similar companies within a small region, your company will be fighting for customers.
Reputation is also extremely important when thinking about buying an existing business. Whether or not customers come to a business is largely based on word of mouth and local reputation. You can research local reputation by looking at web sites such as Angie’s List, Yelp and others.
Network in your existing industry
Buying a company outside of your existing industry can increase the amount of work involved for you.
You will need to build new relationships, vet vendors and essentially start from scratch as a business owner. However, if you decide to purchase a business within your existing business network, you have a wealth of connections and knowledge to draw upon. You can find out about potential businesses for sale by talking to your business contacts or reading industry journals and newsletters.
Finding a business to buy can be an exciting and invigorating experience. It is important to honestly evaluate if you have the skills and knowledge to successfully run a business and if you have the financial resources available.
Conduct market research to determine the reputation of the business you are thinking about buying and if there is potential for growth.
Bio: Peter Watson is the chief executive of BizListings.com.au, a buying and selling business for sale company.
This article first appeared on StartupSmart.