Buying a Busness – Why are you buying?

There are many business in the world for sale or soon to be sold. Before buying a business you have to consider a number of things before you buy just anything.

  1. Are you buying for lifestyle – Once you start you may not realize that the business takes a lot more time than you initially thought. If you thought that you were going to spend time with the family and realize that there is a lot less time now than when you were working for someone else. and you are the boss from whom you cannot run away from.
  2. Are you buying for economic reasons – Any amount will do right or wrong, you need make an assessment of how much you need before you search. Typically the money you need is not the same as your first dive into your finances. Take time to do a personal budget and as your family is growing so will that required amount be. Create a proforma budget that looks 5 years into the future.
  3. Once you have determined your lifestyle income needs and income goals; Your purchase criteria have to be defined. Ex: if your net-income need is $100K than a business earning $500K with 20% margin is not enough. You have to look for a higher amount
  4. Look at the industry to understand if it has a future with your personal input. An example I have is where a group of five bought a foundry company. Looking at the casting industry in North America, we can see that the industry is in decline. The niche of micro casting is in expansion and they have taken a tired old company and directed it into a niche where no other company occupies. They have become the sole supplier in a growing industry.
  5. Do you have a network in that field and can you build it quickly; For every great idea that you may have, you need to get some feedback to see what you missed and see what other people have seen. Buying a business requires that you are moving forward most of the time.

Preparation and Planning lead to the luck you will need, but at some point you cannot be paralyzed and need to get moving.

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