The X factor in buying a business

Buying yourself a business is often a more successful way to start up. Here are the ‘must-haves’.

There is no doubt that buying a business has a higher probability of success than starting one from scratch. But what are your chances of success if you buy a business with which you are unfamiliar?

Plenty – according to the franchise promotions. On the other hand there are plenty of career professionals who believe that in order to run the business you must be able to ply the trade, whether it is plumbing pipes or pulling teeth.

The fact is that being good on-the-tools is not a requirement, or even an indicator of success in business ownership. However it is very important to understand what is required for the business to succeed. In this regard there are some business basics for particular businesses and industries that you must address.

First and foremost, where does the money come from? In which market does the business operate? Who are the potential customers and who are the current customers? What are they buying and what will they buy in the future?

Second, what is required for the business to operate efficiently? What are the major costs, fixed and variable, and how can they be monitored and controlled? Also what are the risk factors, within and outside the business?

Third, cash flow. What are the margins, payment track record, terms of trade, and seasonal fluctuations? How will these factors impact on the financial requirements of the business and its ongoing profitability?

Finally, how will you affect the business? This is the real X-factor – if you can satisfactorily answer all of the questions outlined above, and see the issues that sit behind them. Will you provide the business with vision, working on the business over the long term while managing the business day to day. If you can see a way of taking the business and improving its functional and financial performance, then you might be looking at your next business.

Andrew Kent is a director of BizExchange, an independent marketplace for business for sale or seeking investment. BizExchange has a directory of independent advisers and business brokers and information on valuations.

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