8 Ways to Make Buying a Business Less Scary

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Posted by Jennifer Smith Hendrickson on

In addition to eating a ridiculous amount of candy corn, with Halloween around the corner, we’ve been thinking about all things scary. Here are some things that can make an entrepreneurial leap a little more comfortable. If you’re a business owner looking to sell, take note of these things too as they’ll be important when it’s time to prepare your business for sale.

Some external factors that help reduce the fright-factor for buyers:

  1. Partnering with a Business Broker: Ok, that one is a little obvious…but we can help you know what questions to ask, which businesses to avoid, and how to structure a deal that will provide a win-win situation for both sides. A poorly structured deal can sink a perfectly good business.
  2. Low Interest Rates: We’re experiencing low interest rates right now. Locking in a favorable fixed interest rate for a period of time can provide a tremendous advantage for your cash flow.
  3. Positive Economic Environment: The business landscape looks great right now! Business is booming and confidence is high in a lot of industries and it’s a good time to be a business owner.

When looking at a specific business, buyers should consider the following:

  1. Consistent or Increasing Earnings: If a company has seen pretty consistent earnings for the past three plus years, it’s a sign of stability and that you could reasonably expect that to continue into the future. Bonus points if the earnings are increasing year over year. If the earnings are decreasing, listen to the spooky feeling in your gut, and dig in deeper to understand why.
  2. Strong Management Team: If the company you’re interested in buying has a strong management team in place, it means that you have a great support system that will keep things humming along once you’re at the helm. These people can help ease you into ownership by providing a lot of institutional knowledge and help you avoid many of the pitfalls.
  3. Recurring Revenue/Contracts: Assignable or assumable contracts and clients that provide recurring revenue can help bring some peace of mind for new business owners. This revenue can help stabilize the business through transitions.
  4. Low Client Concentration: We never like to see a business that has a large portion of its revenue attributed to just a few clients. This creates a high level of risk if one of the clients decides to leave. Look for a company that has reasonable diversity in their customer base.
  5. Clean Books: Confusing/muddy books are like a haunted house: you never know what might be lurking around the corner. Make sure that you’re able to understand the financial statements and that they make sense to you.

Transitioning business ownership can be scary and stressful. As business brokers, that’s what we do every day.  We leverage our experience to set our clients up for success in the next chapter of their lives. When you’re ready to take that step, give us a call and we’ll be your guide.