Things to ask yourself before buying a business

1.      If you are coming from the corporate world, one of the biggest changes you will need to get used to is a highly variable income.  Unsteady is neither good nor bad, depending on your own ambition, luck and willingness to work hard.

2. Is this something I can start myself? What are the barriers to entry in the business you are looking at? If this is not something you can start, be extremely cautious when dealing with the seller of the business.  The last thing you want is to have the seller of the business as your new competitor.

 3.  Often times, if it is too good to be true it probably is.  The seller of a business has one motivation and that is to sell the business to YOU.  Keep in mind, even the most honest of sellers may not “lie” however withholding information is just as damaging.

 4.   Buying a business is risky enough, and that fact is compounded when you are buying into a field you are not familiar with.  If you truly want to learn more about a sector, consider working in that sector before you buy the business.  Book smarts cannot make up for experience, once the rubber meets the road. 

 5.  If your previous lifetime was spent in a Fortune 500 environment, you will be in for a change.  Things you may have taken for granted (unlimited office supplies, having an assistant, steady paycheck) will no longer be there.  As an owner of your own business you are responsible for the money you make AND the money you spend.  Improper cash management is one of the largest killers of small businesses. 

 6.  Having a cushion is extremely important.  There are many unknowns, and often new business owners make assumptions on best case assumptions.  Many small business finders will usually find those P&L projections will quickly go out the door.  There are many factors such as market changes, unknown new competitors, etc.  Remember that just because the previous own made a certain amount, there is no guarantee you will make the same thing.

 7.  This is really the most important factor (as I am speaking from personal experience).  For example, at one point I had evaluating purchasing a company which supplies parts to the Department of Defense.  During my research, I had learned that this business was a one trick pony about to come into a huge revenue shortfall.  How did I learn this?  During my due diligence process, I had to read through congressional reports eventually finding out the story.  Apparently, there was going to be a gap in a timeline creating an immediate revenue issue.  This part was going to be used on a Naval ship.  Now keep in mind, the seller did not “lie” when he failed to mention this.  He simply “omitted” very important details.