Buying a Business: 7 Important Things to Consider

by Hengki Setiawan 15th of September, 2024

Buying a Business: 7 Important Things to Consider

It was wintertime in Perth, on a busy Monday morning. While enjoying my skinny latte at Fez Café in Mount Lawley, my phone rang. The screen lit up with "Jimmy, Crazy Rich." This young, wealthy investor wanted to meet with me to discuss his plans to buy a business. He sought my advice on what to consider before making such an investment.

We eventually met at The Lane Café in Claremont.

During our conversation, I explained to him the seven crucial factors to consider before buying a business. Drawing from my experience as both a businessman and a broker, I outlined what I call the "6 Ps and 1 C":

Price
Passion
Place
Performance
Problems
Possibility
Creativity

Price

I advised Jimmy that the first step is setting a budget. By determining how much he is willing to spend, he can focus on businesses that meet his criteria, saving both time and energy.

Passion

I also told him that he needs to know what kind of business he is interested in. What is his passion? Having a business that he loves will provide strong motivation and be a key to success.

Place

After determining the budget and the type of business he loves, it is easier for Jimmy to search for businesses. I told Jimmy, there is a saying that three things make a business successful: location, location, location. Place, or location, is a critical factor.

A great location means not only that the business has high visibility but also that there are enough potential buyers in the surrounding areas.

Performance

With the budget ticked off, the type of business chosen, and the location is perfect, I asked Jimmy to assess the business's performance. How much are the sales and profits, and what are the associated costs?

How long will it take to reach the break-even point? Is the selling price reasonable compared to the profit? I told Jimmy it's ideal if he can recoup his investment within two years.

Problems

Jimmy asked a good question: "If the performance of the business isn't good, should I just forget it?"

No, Jimmy! Especially if the price is low and the location is good. Go further. Identify the problems that are hindering the business's performance.

Is there anything you can do to increase sales and profits? Can you improve performance in a short period and sell it at a higher price?

Possibility

Jimmy was getting more excited and asked what else he needed to consider.

I suggested he explore the possibilities for growing the business. Is there untapped potential?

Check the following:

Can you extend the business hours?
How are the online sales?
What percentage of costs are for employment and goods/services?
Can you pursue product development, market penetration, or market development?
How are the marketing activities?
How good are the Google reviews?

Jimmy gained a better understanding of what to do and promised to explore the options I gave him.

But that's not enough, Jimmy! You have to think outside the box!

Creativity

After understanding all the Ps, I told Jimmy that the most important factor is Creativity. This will define your success in running the business because, in almost every industry, competition is very tough.

Only people with new and different ideas will become winners, especially those that add value to the customer.

New, different, and even weird ideas are not enough. You have to put yourself in your customer's shoes and understand their anxieties and desires.

Jimmy then told me: I am not a creative person.

Come on, Jimmy! Everyone can be creative if they open their minds. As a creativity book writer and trainer, I outlined three steps to follow to become a creative person:

Seek Inspiration
Be Inspired
Inspire Others
Seek Inspiration

This can be done in various ways: Googling, reading books, visiting competitors, traveling to other places, or even watching movies.

Be Inspired

This step is crucial. You have to open your mind, be positive, and appreciate every single creative idea. Don't judge. Ask yourself, how can I do that? What can I do to improve these ideas and implement them in my business?

Inspire Others

Start with a simple idea and then always try to create something new and different. Share your ideas with others. On and on. Never stop or be satisfied with creating and inspiring.

Got it, Jimmy?

I believe what I shared with Jimmy will also be useful for others looking to buy a business. Let's have a coffee together if you want to discuss, explore, or share different opinions.

Tags: buying finance small business