Before You Buy That Small Business

Before You Buy That Small Business
Buying an existing business is often safer than starting one on your own. But watch out for these red flags.
By Cliff Ennico June 18, 2008

There's no doubt that buying an existing small business is less risky than starting one from scratch. Why? Because, unlike a startup:

•the business has equipment and inventory;
•the business already has a location, and maybe there's a few more years left on the lease;
•the business has employees, some of whom you may actually want to keep;
•the business has customers, most of whom probably will stick with you (unless this is a professional service business or practice); and
•most importantly, the business has a track record--you can look at the business' books, records and tax returns and get some sense of how much money you will make.
But there's still risk. Whenever you buy an existing business and look at its records, you're looking at the past. There's no guarantee things won't change going forward. If you're negotiating to buy a business and you think the seller is giving you a great deal, be very suspicious--there's probably something heading down the road at 90 miles an hour that will blow this business apart when it hits.

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Location, Location, Location?

It is an axiom that in retail it is location, location, location that breeds success for a business. However location is just one part of the equation, of equal or more importance is marketing,marketing, marketing. In this day of economic challenges I think a more accurate description is promotion, promotion, promotion of the business in cheap and creative ways. Carefully examine the ways in which advertising dollars are being spent and that a good return on investment is indeed being realized. Satisfied customers and word of mouth are still the cheapest form and most effective form of advertising. Capturing of customers e-mails and loyalty programs can be effective and inexpensive tools. Spend more time in employee training and education to insure that each customer has a good experience. In a down turning economy there is an increasing supply of truly qualified employees--no excuse except owner laziness not to take advantage of this economic reality and upgrade staffing, if necessary.