Just because you want to own a business doesn’t mean you have to start from scratch. More and more entrepreneurs are skipping the start-up phase and buying existing businesses. When you do this, you’re taking over an enterprise with a number of built-in advantages. For starters, it’s already generating profits. You’ll be able to tap into an established customer base and enjoy the work already done to build the brand.

In this guide, we take you through some key steps to buying a business and lead you toward success.

Buying an Existing Business – Why Don’t More People Do It?

Buying an existing business is often more expensive than starting from scratch. The owner has worked hard to build the company and will want to reap the rewards of their efforts. But the silver lining is that securing financing to buy existing businesses is often easier. Since you have a proven successful model, banks and investors will feel more comfortable providing the funds you need to get started. But first, you need to decide what business you want to purchase.

1. Identify the Industry

Right now, there are hundreds of businesses for sale in British Columbia. Before you browse through, you must consider where your strengths lie. 

Don’t fall into the trap of buying a business just because it’s a “sure thing.” Consider the jobs you’ve had and aspects of each role you particularly enjoyed. You can narrow your search to compatible industries by identifying what you excel at.

Once you’ve narrowed it down, research the accreditation required to own this type of business. If you aren’t qualified, what courses or training would you need to become accredited?

2. Identify the Type of Business

When it comes to buying an existing business, you have two choices: a franchise or an independent business. Each with its strengths and weaknesses.

Franchise:

• Proven Track Record – This business has a proven record, meaning that there’s less risk than starting something new. If you want to sell the company down the road, it may also be more attractive to prospective buyers.
• Customer Base – Potential customers will know your business and trust your product or service.
• Shared Assets – Operating under a parent company means the infrastructure, processes, and advertising are already in place. It’s a “colour by numbers” approach rather than a blank canvas.
• Rules – As a franchise holder, you have less control of the business than an independent owner. You’ll also have to pay the parent company a percentage of your earnings.

Independent Business:

• You’re the Boss – As the owner of an independent business, you’re free to run things as you see fit.
• No Royalties or Fees – You keep all the earnings and don’t have to share any profits.
• More Opportunities, but More Risk – Investing in a flawed business with lots of potential is possible. You’ll reap the benefits if you’re willing to correct its issues. But you must be prepared if things don’t turn out as planned.

3. Evaluating Opportunities for Buying an Existing Business

Each business you consider will have pros and cons. You must objectively evaluate its condition while considering its potential. Look out for these four essential aspects:

Real Estate

Look at the business’s physical location. Is the office, warehouse, or retail space in good shape? Is the equipment and inventory well cared for? If the company is online only, look at the website’s hosting, analytics, and infrastructure security. 

Reputation

We live in an age where customers are empowered to give instant feedback. Their reviews are a powerful tool to measure the popularity of businesses.

Research whether the business is in good standing. Examine their social media channels to gauge how people feel about the company. If there are complaints, do they focus on an aspect of the business you can improve? 

Logistics

How smoothly does the business’ supply chain work? Is it located in an urban or rural area? Would extreme weather cause supply problems? Think of the worst-case scenarios and how they would play out. It’s advantageous to be close to both your customers and suppliers.

It’s also worth investigating the company’s relationship with suppliers. Is it in good standing?

Prospects

A business might have sound financials, an excellent location, and plenty of positives, but if it operates in a declining industry, that’s a problem. Look at the sector’s health as a whole before making a decision.

4. How Much Should You Pay?

Understanding the basics of business valuation will help guide this answer. This can be carried out by certified business valuators, accountants, or even business consultants. They’ll provide additional due diligence and an understanding of the business’s current cash flow and transferable value. Take your time and verify the information you receive before committing yourself to a purchase.

Small Business BC is Here to Help

SBBC is a non-profit resource centre for BC-based small businesses. Whatever your idea of success is, we’re here to provide holistic support and resources at every step of the journey. Check out our range of business webinars, on-demand E-Learning Education, our Talk to an Expert Advisories, or browse our business articles.