Common Pitfalls – Common Pitfalls When Buying
It can be tempting to buy a business that is in financial difficulties. The idea is that you turn the business around, making a substantial return on investment.
But unless you have extensive experience in making failing businesses profitable, this route is best avoided. The initial outlay may seem a bargain, but there are so many hurdles that it’s likely you will never recoup the money. If the business has already gone bust once, it’s important you’re very honest with yourself about whether you have the skills and experience necessary to make it work.
More important than this even, is whether you have the finances to turn a business around. Yes, the outlay will be substantially cheaper, but extra costs will almost inevitably be substantial. Whatever your strategy to turn a business around, it will need as much liquidity as possible.
Other hurdles include relationships with staff and suppliers. Buying a profitable business means you benefit from an experienced team and suppliers already in place, but a failing business means the benefits disappear. Relations could be extremely bad – especially if the business is in substantial debt and there have been payment problems with suppliers. Staff could be extremely demoralized. There’s a strong chance that staff may leave and suppliers may not want to do business with you after the deal has gone through.
It can be difficult to identify the cause of the business’ failure – and without that knowledge you could be in danger of making the same mistakes. Perhaps there’s not even a market any longer for the products or services offered .
Buying a business out of an insolvent situation is one of the riskiest propositions available; If you’re depending on a return on investment from your business, it’s advisable to leave failing businesses well alone and secure a business without the myriad of problems an attempted turnaround may bring.
Why buying can be the wrong decision
If you’re passionate about running your own business, the first decision to make is whether to buy or to start from scratch. If you have a very specific idea about a product or a new service you can offer and you want to build up something unique based on these ideas, it’s best to consider starting a business. This allows you to instill your own ideas into every stage of a business’ growth. Buying a business, on the other hand, often involves inheriting a general way of doing things, as well as a customer base which knows what it wants.
Of course, you can phase this out. And you might be able to find a business that’s perfect for you. But if buying a business means you compromise on what makes your business idea unique, it might not be the best route.
You have to be very honest with yourself when buying a business. Do you have the right skills and strengths? Think very carefully about the duties and roles you will need to perform. Consider whether you have the right skill-set for them. You’ll always be weaker in some areas than others: can you make provision for this?
And remember: if you have a passion for cooking, being a restaurant owner will likely not allow you to indulge this very often. Dealing with staff, negotiating with suppliers and gaining customer service skills will be your day-to-day reality.
The biggest potential problem with buying a business is that it is very charged, emotionally. Buying a business is something many people dream of for years. It’s understandable if you jump in feet first, and if you’re less than 100% rational. But if you can’t find the right business, or it’s not the right time, you really will regret rushing into something as big as a business.
Most importantly, you have to love what you do. If you’re not going to enjoy the day-to-day running of your business and all the hard graft it involves, then think again. Find something that you’re passionate about — even if it’s not running your own business — and run with it.
