6 Important Things Before Buying a Business

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Have you ever wished or wished there was a shortcut to starting a business without the months of trial-and-error that plagues most entrepreneurs? What if you could become an overnight CEO for a real, thriving company? Believe it or not, with a little capital, you can. This strategy is what I like to call “acquisition-entrepreneur” – in other words, you are an entrepreneur through acquisition. While getting a lucrative, but affordable business might seem like a no-brainer shortcut to achieving your startup dreams, there are a lot of dangerous pitfalls to look out for before paving your way into CEO-dom. The last thing you want is for you to exhaust your savings by buying a problem you don’t know how to solve. Here are six key considerations before saying “yes” to a startup for sale:

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1. Where is the traffic from?

One of the main benefits of buying an up-and-running business is having an existing customer base or a source of new leads and traffic coming to the store or website. However, having traffic or sales history is just a checkbox. An intelligent potential acquaintance will want to know who, what, and where those traffic sources are coming from. Are they all word of mouth? If so, that’s a major red flag. While this indicates that customers are happy, it also means that the company does not know how to generate its new leads and sales. Is all traffic coming from one social platform, partner, or Ads Manager? If so, this lack of diversification could create a vulnerability. What if that only traffic source disappears overnight or gradually decreases in effectiveness? You may be left starting at square one with a haunted business that you don’t know how to revive.

2. Are there any industry or marketing restrictions?

You don’t have to sell risky, black-market or salty products to participate in marketing restrictions. Even the best products and industries may experience platform restrictions or advertising upsets that significantly limit the ability to market those products. Do your research, and determine how and where competitors are marketing this product to prepare yourself for any widely known obstacles. For example, selling innocent weight-loss products can come under fire for providing dangerous medical or health advice, immediately banning ads, and banning social media accounts if done incorrectly. forewarned is forearmed.

3. What is ROR (Rate of Return)?

One thing that very few entrepreneurs handle themselves is that 100% of your customers may not actually be satisfied with their purchases. Facing your first product return or service return request is one of the most shocking and devastating moments in most founders’ careers. However, most companies experience more than one return in their lifetime; In fact, some industries are filled with obscenely high returns, refunds and dispute rates. Before buying a business, take a good look at their historical rate as well as the industry or sales platform’s standard rate. The last thing you want is to assume that your $100k sales month is 80% profit before you have to return 50% to unhappy customers.

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4. Is there any seasonality? Can you explain the fluctuations and outliers?

If you’re selling chocolate, it may be obvious that February (Valentine’s Day) and October (Halloween) sales should increase. But sometimes ups and downs and seemingly outsiders do not have such clear explanations. Before you buy a business with volatile sales — or even just a temporary sales desert — be sure to investigate why. There may be a reasonable answer, such as a new competitor’s simultaneous product launch or an industry-wide upset. However, the answer could be something more nefarious or related, such as a seller’s advertising account disabled or an industry restricted from its primary marketing platform. Volatility is one of the hardest pills for entrepreneurs to swallow, but you’ll feel much better and more equipped to face it if those ups and downs are the answer.

5. What are the ongoing operating (and marketing) costs?

Many aspiring entrepreneurs believe business problems can be solved by just throwing a few social media posts or $20 into your advertising spend budget. In fact, there are many costs you might not have anticipated, as well as the possibility that effective marketing is much more expensive than expected. If the business currently spends $2k a month on operations and $5k a month on marketing, you should be prepared to set aside at least three to six times as much for your operations and marketing as you would to become the new owner and operator. do infection. The last thing you want is to start and ruin your new venture because of lack of cash reserves.

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6. Why are they selling – and does it make sense?

Let’s be honest: If a business owner is willing to part with their child, there’s probably a good reason. Sometimes that reason is completely acceptable and of no concern to future owners; Such reasons include a non-compete after another business sale that prevents the owner from continuing operations or the closure of another company and all of their time required. However, many times the reason foreshadows the present or future obstacles the new owner (potentially you) may face. Reasons like looking for someone to run out of money from an owner or to inject new enthusiasm into the business lie in a related field far more down the line. If a company is low-maintenance and cash-flow – or even more maintainable but highly lucrative – some owners are eager to sell at anything other than an outside (expensive) appraisal. A cheap business for sale can be a bargain or a lemon. You’ll want to do as much research as possible before you wire up your offer price to find out.