Buying an existing business, while requiring more upfront cost, is typically less risky than starting your own venture from scratch. You can look at actual profits, losses and forecasts without the need to calculate estimates. It can be a great opportunity to drive a currently stagnant business into a success story under your leadership.
However, there are some fundamental questions that you should ask the vendors before you sign on the dotted line. These questions can give you a valuable insight into how the businesses run, how they are placed within the community and market, but also how you can negotiate a price that works best for you.
- What could have been done differently?
Hindsight is a wonderful thing, and if the vendor is open to talking to you about the errors or missed opportunities of the past, you can gain an insight into any gaps in the market that they have identified or product lines that could be a success. It could be that they failed to take out adequate insurance for the business and have been stung by the financial consequences. These observations can help you make better business decisions; for example, taking a commercial professional indemnity policy that is tailored for the specific business such as those offered by Hiscox, marketing the business to a different demographic, or introducing new product lines.
- What are the greatest challenges the business currently faces?
While the books look good and the business looks like an attractive prospect, asking the vendor about the greatest challenges that the business face will give you an idea about the level of investment that will be needed to turn the business round.
People sell businesses for a whole host of reasons, and you need to understand why they are selling up and whether the business is salvageable. The more information you have on why they are selling the business, the more likely you are going to succeed because of the forewarning and additional information.
- Does the business rely on key customers or suppliers?
You need to understand whether the business is a success due to key business relationships, or reliant on a limited number of contacts. Many businesses are a success due to the person that runs them.
For instance, the vendor may be the glue that holds the venture together, having grown the key business relationships organically over the years. This can be problematic if the key contacts will not give you the same loyalty. Therefore, you will need to create similar relationships with them so that you have the same level of business and allegiance.
When you are researching a new business opportunity, you will be focused on the facts and figures of the accounts, but it is important to ask the vendor pertinent questions to help guide your decision. The answers that the vendor replies with provide you with valuable information that can help you better understand the prospect and even negotiate a better deal.