Let’s get straight into it. Why Do You Want to Buy a Business?
Such a simple question. Yet, this question is so very relevant and often inadequately considered before most aspiring business owners make their first business purchase.
And oh, what a shame that is!
You see, unfortunately, there is the ordinary, typical approach to buying a business which as you can expect leads to the ordinary, typical story of extreme difficulty in making it work, both operationally and financially.
On the other hand, there is the proven, right way to do it. However, this way is an often overlooked and under-committed pathway to achieve extraordinary success when buying a business.
Let’s first address the ordinary approach. Time after time after time, what happens…. Our phone rings or we receive an enquiry through our website along the lines of, ‘Hi, I purchased a business a year ago, its not going well and so I need my taxes done on the cheap.’
Do you know what this means?
This means that the new business owner is struggling to even make enough profit to keep the business afloat. He or she certainly isn’t achieving financial success, and is also no doubt tremendously stressed and exhausted.
It means that unfortunately this business owner has made the same old mistakes as so many other new business owners have in the past.
He or she likely went about buying a new business on the cheap.
Don’t get us wrong, you want and need to buy an affordable business. You need to buy a business which is actually worth what you pay for it. You need to know with a lot of confidence that the business you are buying isn’t going to send you bankrupt. To do all this, you can’t buy a business on the cheap.
What does it mean to buy a business on the cheap?
It usually means that you’ve spent $500k+ on purchasing a business and in the process obtained “advice” costing less than $10k.
There could be less than 0.01% chance that you actually got the advice you need in such a situation.
It’s an unfortunate, yet true and too frequent occurrence, that aspiring business owners fail to get the guidance they need during a business purchase.
Most people rightly recommend that you complete a due diligence before buying a business. However, all too often this is:
- Conducted by someone who doesn’t know what they are doing; and/or
- Limited in scope to essentially make the due diligence practically meaningless. If you’re buying a business for more than $500k, why on Earth would you risk doing a limited due diligence – one that is not extremely thorough - since a limited due diligence is highly likely to miss several major areas of concern.
You’re free to come and speak to us about the real world war stories of new business owners going down this ordinary path to financial ruin. It’s tremendously sad and is part of the reason we are so passionate about helping business owners get it right.
When you follow the extraordinary approach, you do what the world’s best entrepreneurs do. They make sure that the business which is for sale and the one you are considering to buy is a valid business.
A valid business is one which is bought for the right price, won’t financially cripple you and instead will be highly profitable, and very importantly, will be a business you enjoy owning.
This last part – buying a business you enjoy owning – is why you must ask very early on: Why Do You Want to Buy a Business? It’s extremely important to know the answer to this – what is the reason / the purpose for you wanting to buy the business. You will learn more about why this is so important in the final, fourth part of this blog series.
The extraordinary approach is the road less taken not because its hard, but because not enough advisors are frank with aspiring business owners and aren’t resolute enough to tell you a standard due diligence just won’t cut it.
In the next article of this Buying a Business in WA series, we continue this discussion and specifically address Due Diligence vs Business Validity Deep-Dive; what you need to do to buy a successful business.
Our next FREE event is on Tuesday 26th November and is strictly limited to 12 aspiring business owners. You can reserve your seat here: https://bit.ly/2qsb2oG