Tips When Buying a Small Business

If you are looking to buy a small business it can be a very wise decision on your part, helping to secure your long-term financial goals, but it's not for everyone.

To buy a small business is not small undertaking. There is significant research, due diligence and soul searching that must take place to make sure that you are making the right decision.

Here is a brief examination of some of the issues to keep in mind if you are a buyer looking to buy a small business and some useful tips that can help you in your decision making process.

Find the right company to buy

All too often, prospective business buyers "chase cashflow". They talk to their business broker, or browse online business listings, and quickly get charmed by the reported cashflow a small business earns and think, "I'd like to own a business like that!"

Please be very prudent and cautious of this. Even if a business does earn great cashflow for the owner it is not necessarily the right reason to buy a small business.

What is critical when owing your own company is that you are compatible with the business and passionate about it.

Please, take other considerations in mind and don't just "chase cashflow". A company's profit is important but it is not the only thing to look for.

Be skeptical? but not cynical

When you start your quest to buy a small business it is important that you take everything that you discover with a grain of salt.

For instance, when you meet a business seller and he or she gives you the rundown of their business it is important that you take everything they tell you with a grain of salt.

Obviously a seller will want to present their business in the best possible way to someone looking to buy a small business. Take what they say, make a note of it, and if you are serious about the business or want to put in a conditional offer – confirm everything.

This can happen during the due diligence process, or even beforehand. Take the time to fact check, review the books, operations and do all of your homework.

Be thorough but try not to be cynical. Sometimes investors looking to buy a small business cross the line to cynicism and can take honest mistakes or missteps to mean more than they are.

Be thorough, be careful and be prudent. Don't be cynical.

Can you see yourself doing this in 10 years?

When you're looking to buy a small business please try to imagine a long-term perspective.

Can you see yourself running this company in 5 years? 10 years? Can you see yourself coming in everyday and dealing with the staff, vendors and customers?

There is good and bad that comes with this territory. Again, look past the attractiveness of the business based on the here and now and try to discover if this is really what you want.

When you buy a small business it is much bigger step than changing jobs. Career changes happen but buying and selling a small business will require an entirely more involved process.

Can you add value?

One important question to ask when you're looking to buy a small business is – can I add value to this company? A small business owner is the key person in the organization.

If you are a driving force, motivated, passionate and inspiring then you are on the right track to making the company a successful organization.

To buy a small business is an exciting step. Take stock of what you are passionate about, be careful during the search process, and try to take the long view with whatever course of action you decide on.

All content posted is not a substitute for legal, accounting or other professional advice and not intended to be relied on as such. We always recommend that you contact your own advisors for their input.