…and why maybe to pass on buying one…This week we talk about a great way to bypass the early startup struggle and get yourself into a good business quickly. As a bonus, we also go over which businesses to avoid!
Buying a business is a great way to bypass the early struggle of starting a business, if you have the capital to do so, but there are a handful of things to look out for!
There are certain situations that are perfect fits for buying an existing business. One of those might be if you’re working somewhere and you’ve earned their trust and there’s not a transition plan in place. Maybe you are shopping for existing businesses or you’re buying a business that’s within the industry you already have another business in that may be for sale. What I’ve done is I’ve just made blanket offers to people whose business would have complimented mine.
Why Buy An Existing Business?
It Has a Proven Business Model
This simply means is that there’s a conveyor belt in place. They are attracting, selling, and servicing customers. They are rinsing and repeating their business and processes. They have a staff in place. They have a model in place that allows them to attract buyers, sell to them, and to deliver on what it is that they’re selling. They have a model then runs effortlessly.
In a startup, the business model is constantly adjusting over the first few years until you get a proven model. Rarely do you start with a successful business model.
They Have an Existing Customer Base
A company I was looking at two years ago was a perfect fit with our existing business. It didn’t look very profitable, but what did interest me is it had a 30-year customer base. The reputation was good enough, but the company had a perfect customer base to match ours, and that was the reason why I wanted to buy it.
They’re Staffed and Ready to Go
I took over a company this year and it didn’t quite work out the way I wanted it. I wanted the owner of the company to join forces with me, and it didn’t work out, but I got four super staff people out of his company…Once he started working for us, they’re like, This is the next level. No, we want to stay We don’t want to go back with him, we want to stay with you, and I picked up just some just incredibly talented staff.
You buy a company because it’s staffed and ready go.
They Have a Great Reputation
The company I bought for its customer base also had a great reputation. A lot of times when we were doing estimates, this other company’s name came up.
When Not to Buy an Existing Business
If They Have a Lot of Debt
I don’t want to buy a debt-ridden negative company, and that’s why you need to turn over all the rocks. I need to look at the whole thing. I’m not going to buy anything that’s going to drag on my existing business and profitability is going to dictate the cost of it. It doesn’t necessarily have to be profitable for me to buy it. I would prefer it to be a little distressed because I have a proven formula business model where I can turn it around immediately, but I’m not looking for something with a bad reputation either. That can take time to rebuild.
If You Can Get a New Company Ready from Scratch In Shorter Time
There’s too many things that make purchasing a specific business unfeasible. It could be that the reputation is bad, or they’re negative on cash flow, they’re debt ridden…whereas if you started from scratch, you’d be be better off two years from now.