Don’t Blow Your Cash on a Bad Business!

Posted by on May 21, 2013

burning-cash

So Your Ready to Buy a Business? Now What?

If you are in the market to buy a business and are ready to invest in one, do not allow your enthusiasm, or a flashy sales presentation, lure you into making a commitment that you will later regret.

If you do, you could end up wasting your time-and a substantial amount of cash buying a poorly performing business.

7 Important factors to consider when analyzing a business

1) Determine what the start-up costs will be, and if there are any related ongoing expenses as well. Be cautious when making your initial investment because the projections of future profitability presented to you may be inflated, but you should also be ready to assume a reasonable amount of risk as well.

2) Remember that you will need an advertising budget in order to make your business known. This should be between 2% and 7% of your gross, with a maximum of 10%.

3) You are far more likely to succeed if the company you deal with offers substantial training and support to its agents. Ideally, your progress and potential for growth will be closely aligned with theirs, and what they provide should verify that this is the case. You should also be given some idea of how much you can realistically expect to make from the business in question.

4) In business, the break-even point is defined as “the volume of sales needed so the that expenses related to the business equal the income the business receives.” (In this situation, there is no profit or loss involved.) You will want to know where that point is for any business you consider purchasing, and how long it should take you to reach the income level that has been suggested to you.

5) Note that if a company is so new that it actually has no track record, it could also be unstable. At the same time, one that was founded long ago will have an army of sales representatives, and there will be little or no room for you. It is best to look for a company that has been in existence for a few years and offers you a fresh opportunity and stability as well.

6) Always look into the company’s record with the Better Business Bureau (BBB) to determine its status. Otherwise, what seems like a worthwhile prospect could actually be a scam. Also, their products should be of high quality. Ideally, they should also be consumable because your customers will reorder from your, and you will feel less pressure to constantly seek new business.

7) If the company requires you to purchase a certain amount of products routinely, this can be both impractical and stressful, and you will want to order on an as-needed basis instead. Note also, that you will want to avoid selling luxury items, even if they are of good quality, because the price for them will be high (these are more difficult to sell, and the market you can target will be quite limited unless you live in an affluent area).

Don’t Rush the Purchase

Buying a business is a very exciting time in your life, but it isn’t a decision that should be made in a rush. Take your time, analyze the business, do your due diligence and leave no stone unturned. Make sure that the business you are about to invest in ticks all of the boxes.

Always follow these simple rules when buying a business and avoid the pitfalls. Before signing on the dotted line, get your accountant and solicitor to take a look at it for you.

Author: Andy White

Andy White holds a Masters of Business Management and after a career as an Officer in the Australian Army, worked as a Business Consultant and now operates his own successful Real Estate business on the Queensland coast.

VN:F [1.9.22_1171]
Rating: 5.0/5 (1 vote cast)
Don't Blow Your Cash on a Bad Business!, 5.0 out of 5 based on 1 rating