Any entrepreneur who has considered buying a new business wants it to be the best possible investment: that the potential of the business is limitless, and his purchase did not carry any risks. But this is not the case, because there is no such thing as a perfect business. It is known that every business has risks, but at the same time, if used properly, every business has opportunities. In this article, we will break down the main criteria by which the purchase of a potential business is evaluated.
The top priority for any business is its growth potential. Virtually every entrepreneurial company has this opportunity, the only question is how to use it correctly. You as a potential buyer need to understand first of all: what is this opportunity? How will it work? When the opportunity is found you need to match it with your skills and interests, make sure that what the business is related to is exactly in your area of expertise and is right for you.
A service business is much harder to scale and manage, to create value, and then sell profitably. And that’s because the success of the business model is based on the workload of people, and the products create the intrinsic value of the company. John Warrilone’s book “Built to Sell” talks about this.
Suitable Industry Conditions
Every industry has a life cycle: birth, development, bloom, and decline. Every entrepreneur tries to stay on the “blossom” stage, and that’s why they choose an industry in the business industry demanded by teenagers because such areas won’t outlive themselves for a long time to come. If you are also confident in the relevance of your industry, it means you have the right conditions for your business to grow and develop.
True brand recognition
If you look at the logo of a company you don’t know, it’s hard to tell if it’s a new company or one that’s been around for over 100 years. A company can work for many years, but no one will know it except its customer base.
It would be logical to assume that staying on the market for such a long time, about the company should know a lot of people, but this is not so. People’s attention has to be earned, and that is the great merit of an organization’s competitiveness.
Another point in our acquisition evaluation template is the way of income of the company that we are selling. Pay attention to what strategies and margins are offered to you by the sellers – if their income is based on transactions, it means that you have to spend money to attract customers every time to get a benefit. If the company’s revenue is based on subscriptions it’s extremely good, because that way you only invest once and then get ongoing revenue and benefits.
As stated earlier – the risks associated with the business are always there, what you need to decide is whether you can handle these risks or not. Although no one can answer this question, you can use additional tools to help you quickly understand the economic structure of the business model, trends, opportunities, and threats. The Innovator’s Dilemma and SWOT analysis are some such solutions.
To better understand all of the financial aspects of the company you are purchasing, you will need the help of a third party, such as the IRS. To be fully confident in the transparency of your acquired company’s operations, integrity and benefit, check the company’s internal records.