Doubtlessly, buying a small business is more risk-free rather than buying a start-up because it has existing employees, customers and location. Hence, it is more risk-free as well as more feasible. But, still, you cannot just buy any business without giving up attention to some important details, otherwise all your money could go to waste.
Hence, this article will provide you with the things that you should take into consideration before buying that small business that you have put your eyes upon.
You should not trust the past records of a business as an assured way of making money into the future. Because there might be hurdles in the future that could be unaccounted in the financial logs of the past. And thus it is of immense importance to consider these factors before you buy the business.
1. Nearest Competitor
It is quite possible that the owner is selling his business because of a competitor opening a potential branch in that area, which might immensely drive down the sales of that business.
You need to be aware of that, and make possible adjustments in the deal or cut it off altogether if there is such an opening. You need to call all major competitions in the niche of that business and ask they plan to open any branches in that particular area anytime soon.
For example, if the business you are looking forward to buy is in the Fast Food category, you may call McDonald’s, KFC, etc. to ask them. If they do plan to open a branch soon, then you need to check the practicality of the change in profits of the business you are planning to buy.
2. Demographical Changes
It is quite possible that there might be changes in the local politics or the commercial prospect of the area that might lead to the owner selling his business. Hence, you need to take that into care.
Check out the City Development Authority and related authorities to check out whether a major shopping center or mall is opening nearby. Similarly, check out news outlets to see whether there is some new area that is attracting new businesses and customers.
You should also check if the population in that region is remaining steady, growing, or declining.
Similarly, you should also be sure of the fact that people are not migrating out of that city due to some reason, for that will definitely be a major drop for business sales.
3. Net Revenue
It may be possible that the financial tables show an increase in the revenue of the business, but at the same time, more money may have been invested in recent periods.
Hence, the major factor you should be concerned about is the net revenue that you, as the owner, will be generating. You need to check the logs, and ask the current owner about that, and take into consideration whether that owner’s discretionary income is rising or falling.
These are 3 of the most important things you need to take into consideration before buying a small business, and will help you in carving a good decision.