(Guest blog post by Sharon Redd) As an entrepreneur, you’re likely to encounter other ventures that spark your interest. You might even be presented with the opportunity to purchase another business outright. But even if you can afford it, taking on someone else’s project can represent serious risk and you’ll need to weigh all the pros and cons before committing. It’s a huge commitment and one you don’t want to make without having a good playbook in hand to ensure you’re not missing any steps, like researching who would be a good fit and weeding out the ones that aren’t the best fit. Here are some tips and resources to guide you along.

Pros

In some ways, buying an existing business can be far more straightforward than starting one of your own. For example, if the business in question has a track record of success, you’re more likely to secure financing. You may be able to agree upon seller financing with the current founder, an SBA 7A loan from the bank, or even leverage a buyout using the business’ assets. Lenders will consider any outstanding debt, cash flow statements, as well as credit scores – which all leads back to the primary question of ‘is the business viable?’ 

To ascertain an answer to this question, it’s important to look at the company’s progress so far. Has the product/service been market tested? Does it have a clearly defined, established clientele? And how does this, so far, reflect in cash flow? Although the business may not yet be profitable, if you look closely at the market feedback, OKRs, and press reactions, you may be able to identify its potential moving forward. An unprofitable, fledgling company is going to cost less but present more risk. A profitable, up-and-coming company without debt will cost you more, but the benefits are momentum and improved financing. If you can get the balance right, it’s possible to make tremendous gains from a single investment.

Cons

One of the common issues, when absorbing another person’s business, is whether you can make it your own. Especially if there are existing personnel, it can be a challenge to re-orientate a culture and refine any outdated or faulty processes. For example, you may decide one of the shortcomings of the previous owner/s was their choice of software – trying to integrate a more modern, well-adapted set of programs can mean recalibrating the entire business or retraining its staff. You’re also inheriting a set of brand values, social channels, and public reputation, which may or may not be positive. In an attempt to revise these, it’s not uncommon to lose customers, distress team members, or accidentally phase out positive company habits.

However, the main negative when purchasing an existing business is the sheer volume of work you’re likely to inherit. If you don’t already have the experience of building a company from scratch, you can easily burn yourself out trying to learn on the go and risk your bottom line in the process. Many who take this route succeed and profit tremendously, others have wrecked their finances and mental health. It’s important, before you take on the challenge, that you understand your own personal limits and time constraints.

Requirements

It’s important to emphasize the importance of industry knowledge as a key component of success when acquiring an existing business. If you have experience in the sector and you understand its culture, you’ll be able to more effectively navigate client negotiations, pitch to investors, and spearhead marketing and comms. Personal expertise combined with a hard work ethic is often a winning formula for finding success as an entrepreneur, especially as many of the available tech solutions simplify extraneous processes, such as branding or CRM. 

Ultimately, there’s no clear formula for whether you should or shouldn’t acquire an existing business. It depends entirely on what you’re looking for, as well as how much time and money you can invest. But if you conduct plenty of research and ask questions, you can find the right answer for you.

Sharon Redd created Live All the Way to help others live life to the ABSOLUTE FULLEST. She believes life all the way is a life with all the toppings! It’s ordering guacamole and queso at the restaurant. It’s wearing those bright pink shoes, no matter what anyone else thinks. It’s using your formal china for every meal and hugging your friends every time you see them. It’s eating ice cream for breakfast and so much more. Her goal, each and every day, is to live all the way and her mission is to help others do the same.