Seven Rules For Buying A Business

By: ActionCOACH | 0 Shares 167 Reads

(Thursday, October 26, 2006) - As the end of the year approaches, you may want to start thinking about adding another business to start your New Year off right. Before you buy your first business or your next one, here are some fast and steady rules I use.

Rule #1 Surviving Despite Self: This is the best scenario. Basically, this is buying from an owner who is absolutely clueless. The business has bad service, bad skill-set, but still manages to make enough money to get by. Be prepared, though, to fire about half of the employees because they are not happy to be there. Also, since there is such a low satisfaction rate, make sure you let everyone know that it is under new ownership and management.

Rule #2 Cashflow, not Assets: When buying a business, buy a cash-flow company, not one that is burdened with lots of assets. You need to collect cash profits over and beyond your wages to make it worthwhile.

Rule #3 Low Skills and a Staple Product or Services: I don't want to purchase a high-skilled company, such as an engineering firm, because engineers want a higher pay rate than I believe is economically-viable. I want a business where the employees are easy to train, hire and keep … those who have a family and mortgage to support so they are more likely to want a long-term, secure company. I also want to buy a business that the product and service that people already know they need. Don't buy a business that is centered around the latest gadget, where you have to convince people. The only thing you want to invent is a better way of doing business.

Rule #4 Bad Sales and Marketing: Choose a business that has been doing a bad job at sales and marketing. If their store is dirty, their brochures are bad, their uniforms are faded and they are still turning a profit, these are easy to fix items that will bring you instant profit. Make sure they have not tested or measured the success of their marketing and advertising efforts.

Rule #5 Hire a Great Jockey: Instead of purchasing a business that you know about, choose one that you don't with a great jockey to run it for you. Often, I will meet someone in the workplace, like a great chef or waiter and then, I buy a great restaurant for that person to run for me. When searching for the jockey, they should have the following qualifications:

1) Treat their current job as if they own the business
2) Have been in business for themselves in the past
3) Love to do the work themselves
4) Possess a great deal of expertise in the industry
5) Have a high level of honesty and integrity

Rule #6 High Upside: This rule is pretty self-explanatory. If you can't make a lot of improvement, you can't make a lot of money. Make sure, though, if you purchase a business that is taking a loss that you are very clear in what action you will take to turn the business around in the first month.

Rule #7 Great Deal: While this is an obvious rule, I have seen too many people let their emotions get in the way of getting a great deal. Set your price before you even walk out your own door and do not deviate from it. You may walk away from more deals than you do. This is common. Also, be prepared to include several "subject to's" in your contract.