7 Signs a Business Is a Good One to Buy

Buying an existing business can be an excellent investment. Turnkey operations don’t involve the often-challenging startup phase, but they do have an existing product line and customer base. Everything is already in place, from incorporation to inventory, so you’re ready to start making money once the sale is finalized.

It sounds great, but here’s a caveat: businesses are a lot like used cars. You can buy one that outperforms any vehicle fresh off the assembly line, but you can also get stuck with a lemon. How can you be sure that the company that’s caught your eye is worth the sale price, not to mention the time and effort you’ll devote to bringing it to the next level?

Here are 7 signs that the business may be a smart investment.

  1. All Major Processes and Systems Are Documented

Some companies are run by long-time employees who know their jobs so well that nothing is documented. Unless you’re one of those employees, this type of business is not a wise purchase. An enterprise that has thoroughly documented its sales and operations processes deliver a better ROI. 

  1. The Business Is Self-Sustaining 

Ideally, a company should be able to run and generate profits whether you are present or not. If you inherit a team of experienced and capable employees, they can handle day-to-day activities while you explore ways to take the company further.

  1. Strong Marketing Campaigns Are in Place

A business with strategic and ongoing marketing campaigns is poised to remain competitive in a constantly changing marketplace, especially if the current owner tracks the results and lets the successful ones guide their business decisions. If the existing management team plans to stay after you assume ownership, they can help you keep the marketing wheel turning.

  1. The Owner Is Not Part of the Company Brand

When you think about the Wendy’s restaurant chain, the first thing that comes to mind is probably its founder, Dave Thomas. While owner personality and presence can be a major part of a company’s success, it can also create problems if clients or customers refuse to keep buying after that owner moves on.

  1. Customer and Supplier Portfolios Are Diverse

Companies with a diverse portfolio of customers and suppliers are generally a good investment. Over-reliance on one or two major resources makes a purchase extremely risky should one of them go elsewhere or even stop doing business. Diversification represents greater stability because it gives the company more legs to stand on.

  1. It Has Predictable Income Streams

Businesses with recurring revenue are an excellent opportunity. When you know that a percentage of your investment is practically guaranteed to come back to you, it makes the company a much more worthwhile (not to mention safer) purchase. Sellers will usually want a higher price, but the lower risk involved can justify the expenditure.

  1. The Seller Is Willing to Finance It

If the seller is willing to finance the deal, it means that they are confident that the business will continue to thrive even after a change in ownership. Since they are essentially serving as a bank, they will continue to profit from their former enterprise by earning interest until the balance is paid off.

On the other hand, anyone wanting to offload a struggling company will usually seek the quickest way out. While there may be other reasons why an owner doesn’t want to finance, a refusal should result in a higher degree of scrutiny and due diligence on your part.

Once you’ve found the right company, it’s time to think bigger. That’s where Soterian can help. We show business owners how to generate strong ROI after the sale and shape their own professional future in the process. To learn more about the Soterian Process of Finding Your How, click here to schedule a time to discuss how we can help!

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At Soterian, our goal is to help business owners like you think bigger. Bigger than today, bigger than your business, bigger than yourself.

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