How to buy a ready-made business: 7 criteria for a successful transaction
In this article, we will tell you how to buy a ready-made business. After all, this process also has its own nuances and subtleties.
If you are thinking about creating your own business, you can start with ready-made solutions. In order not to go through the path of finding suppliers, contractors and other subtleties, purchase a ready-made business and check it out.
If you have created your own ready-made business and have already gone from a startup to a human entrepreneur, you can earn money from your business by selling a share.
But the article is still for those who have just started their journey as entrepreneurs.
The main criteria for buying a business
Of course, the path you have traveled from start to finish provides much more in terms of efficiency and personal experience, but it takes a lot of time.
If you are not going to go through all the trial and error of entrepreneurial experience, but are ready to buy a working business and make an income, be guided by the age-old adage “measure 7 times, cut once" when making decisions.
If you do not know how to buy a ready-made business, pay attention to the following indicators:
1 Why the business is for sale
If you decide to buy a ready-made business from a person who sells it, the first thing to find out is why the person wants to get rid of his business.
Note: You can come across a lot of standard excuses – I’m buying real estate, real estate, I really need money to pay a loan, pay a mortgage, and the like. This is the first moment.
2 How much does the business bring
The second point is, of course, the revenue of this business. Be sure to ask for figures – revenue figures for the last six months. Because this period characterizes the activity of this business, that is, pre-sales activities and is one of the main performance indicators.
Note: never take your word for it. All indicators must be documented by accounting documents, bank receipts on payments made, incoming payments from all customers, etc. This is the second moment.
3 What are the costs
The third point – where there is revenue, there are always costs. Be sure to request documented and written information about the costs:
- Unconfirmed payments
- monthly expenses, etc.
You should be aware of where the money goes in the business you are buying. For the most part, your net income will be affected by the monthly expenses of the purchased business.
How is the business doing today? What are the traffic sources? What happens if these traffic sources dry up – for example, advertising for 5,000.00 🪙 on the Yandex.Direct service?
What will happen to the business if the traffic flow changes? If you stop advertising campaigns in Yandex Direct, will customers continue to buy?
Pay attention to what margin and profitability.
We recommend that you definitely see which employees work in the department, chat with them, find out that they want this business.
And also learn about their responsibilities, and check with the manager how he evaluates the performance of their work.
This is necessary so that there is no such situation – you bought a business, and employees do not want to work with you and leave en masse.
Find out about their goals and ambitions, plans for working in the company.
After you find out about the employees, be sure to check if this business has any debts and how it is structured in general. Also check the data on the business owner – loans, debts, criminal records, etc.
Find out how adequate the price of the business is. Calculate the payback period for your investment. For example, you buy a business for 300.000 🪙. Monthly monthly revenue from it is 100,000 🪙 Costs, for example 50,000 🪙. That is, monthly you receive 50,339 per 50,000, it turns out that in 6 months you will pay it back.
But do not forget to take into account at least three more months of the payback period. Because depending on the type of business, its profitability may vary by season.
The most important thing is to look and understand whether you really need this business.