4 Mistakes to Avoid When Buying a Small Business

You’re an entrepreneurial person but you don’t feel like you have an original idea for starting your own business. Buying a business could be a perfect fit for you. In order to buy and run your own business, you’ll want to start with some research. There are tons of opportunities out there, but be sure you find a great fit for your skills, time commitment and budget. 

 5 Reasons for buying a small business

There are many reasons why you might want to consider buying a business over starting your own or working for someone else. Here are a few of the most popular motivations.

1. You want to be the boss.

You want to run a business but don’t want to spend years working your way up the corporate ladder. You can buy a business (or even multiple businesses) to run. One caveat to this one: if you purchase a franchise, you will need to follow any guidelines or requirements set by the franchise company. This could include using specific materials and suppliers, setting up your business a certain way or only using approved marketing ideas. Franchises may also require you to sell your products or services at certain prices that they set and control. 

2. You want a more flexible schedule.

You want to set your own hours to allow for other things in your life such as taking your children to school in the morning, caring for a family member or pursuing another interest like writing or a sport. To truly have a flexible schedule you’ll want to pick either a service-based business where you can set the hours you work (writing, editing, social media or consulting) or make sure to hire a staff of folks who can work when you can’t or don’t wish to. Before you buy a business, you may want to speak with other business owners to make sure the schedule can really be as flexible as you want or need it to be. 

3. You want to create new opportunities.

Maybe you traveled and got to experience a business that doesn’t exist in your city or town. That could be inspiration enough to purchase and start a franchise or branch of the same business so you can introduce it to others. Before you do this, you will likely want to do some research to make sure others are excited about the type of business you’re looking to purchase and open in your town. Don’t forget: you’ll need lots of paying customers. 

4. You have a passion for a certain type of work.

If you have a passion for food, art, fitness or a service-based industry, buying a business to run will help you work in an environment you love. You can choose what you want to do and build a clientele and culture around it. Explore what you need to do to get started. For example, some boutique fitness studios offer training to help you learn to teach or open your own studio.

5. You see a need in your community you want to fill.

If you see a need for a certain type of business and don’t know where to start, buying the business might be the perfect way for you to fill the need without having to learn every aspect of running a business. Some businesses you can buy come with lots of resources and support so you can do what you do best.

6 Steps for buying and opening your business.

These steps will help you get started if you want to buy or open a business in your city or town. While this list is not exhaustive, it is a good start on your way to becoming a small business owner.   

1. Do some research to understand the different types of businesses.

Are you going to purchase an existing business in your community or build something from scratch? Will you buy a franchise or will your business be independently operated? There are different rules for each kind of business so making sure you have a clear understanding will help set you up for success. 

2. Once you’ve decided on the type of business opportunity you are looking to buy, do your due diligence.

What is the structure, and how much control will you have? What are the fees? Will you pay one time, or is there a franchise or operating fee you will need to pay every year (or quarter) you own your business? If you’re buying a franchise, you may also want to make sure you know how many miles two locations need to be away from one another. 

3. Seek out a peer or mentor.

Speak with someone who has been through the process of buying a business before. You will want to ask them about their experience — what they liked, what they didn’t and if there were any surprises along the way. Their answers will help you be more realistic and manage your expectations as you go through the process yourself.

4. Check all the fine print.

Before you sign anything, be sure to read all the fine print. It can be really confusing, so you might want to have a lawyer walk you through the entire document. While this is probably the least fun part of the buying process, it's also probably the most important. 

5. Understand what you’ll need to do to run the business and how you’ll be supported (if at all).

You’ll want to make sure you have a good lawyer and an accountant to help you comply with all local laws and pay all necessary taxes on time. A lawsuit or hefty tax bill you weren’t expecting could be devastating to your business.

6. Be sure to hire a team to help you open if you aren’t getting support from a franchise or other owners' group.

You’ll want to have staff in place as well as help with marketing or public relations to ensure people know about your new business. You can hire an agency or PR firm to help you without needing an additional full-time person. Be careful when hiring staff — if you hire too many people, you could blow your budget and push yourself into the red very quickly. Not enough people, and you risk long lines (for a retail or product-based business) and less-than-ideal customer service. This will ensure people won’t return for a second visit. 

4 Mistakes to avoid when buying a business.

Before you start working on your business plan consider these four mistakes people make when buying a business. By having an understanding of why small businesses fail, you can plan more proactively to ensure your success.  

1. Not investing in your business.

Whether you start or buy a business, you want to be absolutely sure you have enough cash both initially to set up the business and pay operating costs. In a product-based business you may need to buy the components of your product or in a food-based business all ingredients, equipment, packaging (cups, bags, bowls etc.) and storage (refrigerators/freezers, dry storage). If you have employees, this can also include payroll and additional benefits, as well as any computers or software you need to run your business. You may also need to continually invest in your business for advertising, replace broken equipment or add new products. If you aren’t bringing in enough money to reinvest, you may need to take our a loan or find another source of funding. 

2. Taking on a business you can’t afford.

Buying and operating a business will require a lot of cash. Make sure you have enough (or have the ability to take out a loan) before you make your purchase. You’ll want to make sure you can cover all costs and know how long it will take before your business starts to turn a profit. You also want to make sure you can cover expenses should an unexpected need arise. For example, a broken window or a stolen POS system can cost hundreds or thousands of dollars to replace. Insurance may cover the cost depending on the situation, but you may need to front these costs until the reimbursement check comes in order to continue to open and run your business.  

3. Taking on a business that you don’t have enough experience in.

It may seem like you don’t need to be certified or trained to open some boutique fitness centers or gyms, doggie daycares or other service-based businesses. But how will you make sure you are keeping people safe? Training to operate the facility or ServeSafe might be required to open a food-based business, but if you’ve never prepared food before, will you be able to keep up? Alternatively, you can hire people with more experience than you to help ensure you’re meeting safety requirements and teach you how to do things, but at the end of the day, it is your business, and you need to be able to ensure things are running properly and safely. 

4. Taking on a business you don’t enjoy.

As a business owner, you'll spend a LOT of time working at and on your business. You want to make sure that it is something that you enjoy doing before you put up the cash and make this new business a large part of your life.  At the end of the day, you want to be building a life and business that you love. 

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