Buying a Small Business

Buying a small business for sale is a much different purchase than a larger, more complex mergers & acquisition transaction. A small business purchase is based on sound financials but it is also based on the right fit with the buyer. Compatibility with the company for sale is critical to the success of the venture.

This article will explore some of the things to think about if you are considering buying a small business.

Is the business right for you?

Often, buyers of smaller businesses will go through the process of buying a company and be focused on the financials (which are important), the due diligence process and the actual work involved in buying a small business. The first day after the deal closes can be a moment of panic, excitement - or a combination of the two. When you are working with a business broker, looking for a business to buy, please take the time to reflect on what you really want to do. Can you really see yourself working in a business that you own and putting in significant hours as the owner & operator? Running a small business can be quite labour intensive. Oftentimes, a buyer is replacing a job and is looking for an entrepreneurial venture to focus their attention on. Whatever the case may be, please take the time to consider carefully if the business truly is right for you. You'll be glad that you did.

Does your family support the venture?

When a person buys a small business, it is a major commitment in time, money, energy, and risk. It requires perseverance to succeed. Take the time to have a conversation with your family to get a true sense on what their feelings are about the investment. Buying a small business will affect everyone in the family so please get every member's input before you make the investment.

Are you comfortable with the risk?

Buying a business does require a level of risk to be assumed by the purchaser. After all of the due diligence is completed and all the identified risks are mitigated as best as possible, there still remains a level of business risk that must be assumed. The final leap of faith when buying a business is difficult for some investors and they get ‘cold feet' at the last instance. Before you start looking for a business to buy, do an honest assessment to discover if you are ok with the risk involved with business ownership.

How well do you know the market?

Buying a business is a long process that can take several months of searching until the right business opportunity is found. Sometimes, a "right" business is found that is in the right industry but not the right geography. Sometimes this is ok but sometimes extra caution must be taken. For instance, the process of buying a restaurant business in Toronto, Ontario is much different than buying one in other parts of Ontario - even in a relatively large city like Hamilton. A business buyer from the GTA might be searching for small businesses in Toronto but discover one that fits in all ways but is located in Burlington instead. Although the buyer may be familiar with running such a venture, the markets are much different so it is important to do your homework on the area, competition and other local factors. Also, when you buy a business in another city please take into account such factors as the commute, as this could impact your quality of life.

Buying a business is a journey that requires financial prudence but also one that requires some insight into yourself and what you are looking for from the venture. Be honest with yourself and take the time to consider all the variables - not just selling price and the bottom line.