Buying An Existing Business: Due Diligence Guide For Smooth Transition


For an entrepreneur, buying an existing business can be less risky than starting a new one. An existing business is already established so they would have clientele, products, a location and incoming revenues. This endeavor is not without its risks, however. There is likely a reason the current business owner is looking to sell. If you are an entrepreneur interested in buying an existing business, do your due diligence and take these vital steps before moving forward.

Make Sure It’s A Good Fit

Before venturing forth on purchasing an existing business, you need to make sure that it is a good fit. Ask yourself, “what kind of business is this? Does my experience and expertise fit in with what they are doing?” If there is a lot of person-to-person sales involved and you are not skilled in interacting with people, it would be a bad idea to get involved with that business. You also need to make sure that your interests line up with whatever that business is selling. Having no interest in technology is not going to help when you start running a tech company. Learn about the core values definition for the business and how it aligns with your own. Be sure that the business is right for you before moving ahead on a purchase.

Check The Numbers

If someone is selling an existing business, you need to ensure that they are not doing so out of desperation. Check the business’s financial history and make note of how it has been doing in recent years. If their sales have dropped considerably, you will want to take a step back and consider what it would mean for you to buy a declining business. Maybe it is in your best interest to look elsewhere. Or, maybe you have an idea on how to right the ship. Whatever your decision is, be sure to check the numbers before deciding on buying that business.

Do Research On the Location

Location is one of the most important aspects of business. Therefore, you need to do some research on the business’s location or commercial office space if you hope to succeed with it. Check around and get an idea of the demographics. Age, gender and socioeconomic status are going to play a big part in knowing your clientele. Also, make note of how much traffic goes through that location on a daily basis. If a lot of people from out of town pass through, you can consider it a positive. You are going to be stuck with wherever the existing business is established, so it is important that you get to know the area before buying the business.

Consider Operation Size

Before purchasing an existing business, you should make sure you are aware of the size and scope of the business you are considering. Do you want to buy a large, successful business? Or would you be content to own a small family business? Larger businesses obviously offer larger profits. However, they are also a much larger time commitment and responsibility. In addition, larger businesses will probably mean bigger buying prices and more anxiety inducing transition periods. Small, family-owned businesses may not make you as much money, but they are also more forgiving for entrepreneurs with families, or those who value their free time. Buying small business has its benefits, as do larger businesses. This is an important factor to think about before you start looking for an existing business to buy.

Check Your Local Competitors

This continues on with the theme of location. There are going to be businesses in your area that offer similar goods or services. It is crucial that you are aware of the competition before buying an existing business. Try to do some market research to see how well your competitors are doing. This can be important in determining your financial projections. Also, it might help to contact big name companies to see if they have plans to open up new locations near you. You do not want to be blindsided by strong competition after making your decision. Once you have an idea of who you are competing with, you can take a step closer to buying that existing business.

Buying an existing business has its conveniences. You can take advantage of an established clientele and eliminate the worries of setting up a location or a new product. There are a lot of risks, however, that you need to be aware of before deciding on a purchase. By running through the steps in this article, you will be able to make a more informed decision on whether or not you want to buy an existing business.

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