How to Spot a Good Business?
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Ready to buy a Business? Buying a Business is one of the most significant financial & lifestyle decisions you’ll make in your lifetime. From figuring out pricing to why you should choose a certain type of Business, there are many factors to consider before you purchase a business. Out of all the questions we have when buying a business, one stands out. “How to Spot a Good Business?
Here are few tips we hope can help you in making the right choice:
1. Use a trusted Business Broker
We all know that Business Brokers get a cut of the sales price of a business which makes some buyers hesitant to use a broker, because they believe it drives up the business cost & they can make it cheaper by directly dealing with the seller. Keep in mind that the seller, not the buyer, pays the commission. Yes it might be true that a listing agent (the agent representing the seller) is there to protect the seller’s interests, it doesn’t mean that you’re not saving money. A good Business Broker who works for you can protect your interests and guide you through the buying process, from negotiating a price to navigating through inspections, clarifying details, contracts, up until the completion date when you take over.
2. Don’t necessarily buy for the market conditions today
Buying a Business will be one of the bigger financial commitments you’ll make in your lifetime. Before you buy what you think might be your dream business, consider your long-term plans and future. Don’t just assume that the market for the business will grow 10 years from today, just because it has in the past. Do thorough research. Determine whether the business can survive as it is in the future. If not, how much more should be invested to increase or sustain growth? If the market conditions change what can I hold on to? What will be the eventual value?
3. “All Weather” Business
A good business should be capable to sustain in any market conditions, there can be increase or decrease in profits, but it should never “go South” in any market condition. Take Milk Bar’s for example, they were the most sought after by Mum & Dad business buyers for many decades. But today after the supermarket price revolution, milk bars are hard to find, some have gone broke, some have been converted into houses, & some (yes some) still survive and run with good profits. Those who survived were able to adapt to the market, integrate other offerings, and are able to make good profit even today. Those who spotted the good milk bars and differentiated from other milk bars, are reaping the benefits even today.
4. All Good Business are expensive, no that’s not true
If you are willing to open your outlook, you will find good business even cheaper than a bad business. What is good business to you might not be the same for others. How do you say a business is a good business: Just by profits for today? Profits in the past? Location? Managed or Owner operated? A good business in general should be a business with good profit record in the past, current & with a reasonable future expectations, a business where you have knowledge or experience in managing, a business where the location doesn’t have room for any more competitors than it already has, a business where there is opportunity to improve and most importantly a business where you have enough funds to invest with less or no loan repayments. Consider all these when you buy your next business, it will help you in Spotting the Good Business!
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