How Do You Choose the Right Business to Buy?

Often the decision to go into business for yourself is prompted by an independent and entrepreneurial spirit rather than an interest in a specific industry. If you don’t have a particular original business idea that you’re all fired up about, buying an existing business can be a great way to become your own boss.

Buying a business is a major financial commitment, of course. In order to make an educated decision, it's important to ask yourself some key questions:

• Do you want to sell a service or a product? Answering this question can help narrow the field of potential businesses considerably.
• What is your price range? How much are you willing to spend (and how much can you afford) to buy a business?
• Do you want a business that is location-specific? Location is often crucial for a business to be successful (e.g., in the case of a restaurant or a retail store). For other businesses, such as a consulting firm or a janitorial company, the location does not matter as much. Is the business you’re thinking of buying tied to a specific location, or will it be viable if you, and it, move somewhere else? Are you willing to relocate for a particular business, or are you only considering businesses in your area?
• What type of business owner do you want to be? Consider what level of involvement you plan on as an owner and examine what industries will enable you to match that type of commitment. Also consider whether you want your business to be your passion or whether it is strictly a financial investment or somewhere in between.
• What is the ideal size for your business? Do you want to manage five employees or 50? Do you want to grow the business considerably, maintain the status quo, or downsize? How big is too big?

As you answer these questions, you'll likely think of more. Talk to other small business owners in the industry and region you’re considering. Once you’ve pinpointed the industry and area you’re interested in, consult a business broker to help you select a specific business.

Once you and your broker find businesses that you’re interested in, you'll want to ask more specific questions about each business. Why is the owner selling? What are the future projections for the industry and the specific company? What is the company’s reputation, both among customers and vendors?

After you have done research and gotten satisfactory answers to these preliminary questions, it’s time to dig deeper into issues such as the business’s value, financial statements, earnings history, growth potential, and assets. Your banker, accountant, and attorney will be able to help you go over all the issues involved and make the best decision.