The First 4 Things You Need to Do Before You Buy a Business

The First 4 Things You Need to Do Before You Buy a Business

Have you seen the commercial that the automobile retailer CarMax has come out with recently? It’s a commercial with a simple message; Start.

The commercial shows people in various stages of distress over their car situation, with the last lady watching a wrecking ball getting dropped on her car. At that moment, a white line appears with the word “Start” on it, which leads her to a CarMax dealership.

I’m willing to bet that this commercial provides a great illustration for most of you reading this blog right now. Working in a job that you’ve grown tired of, desiring to own your own business but just not sure how to go about pulling it all together. I know many people like this whom I have coached in the past that were in the same predicament. Unlike buying a used car, buying the right business is a lot more challenging. But, just like buying a used car, you have to start somewhere.

And sometimes getting started is the hardest thing in the world for you to do.

What I’m giving you are a few steps that will help get you started in the right direction. If you’ve ever moved a heavy object around on the ground, you know that just getting it moving is the hardest part. Once you get it moving, inertia takes over and makes the job easier. And while you will never hear me say buying a business is easy, I will tell you that there are techniques for making it easier.

“A journey of a thousand miles begins with a single step.”
– Lao-tzu

1. Get your spouse or significant other on board.

I have yet to find a better starting point than this one. Next to choosing who you are going to marry, buying a business is going to be the single biggest decision most of you will make in your life. Getting your spouse (or significant other if they are going to be a part of the decision-making) on board with your decision to buy a business will do a lot to help move you forward with your buy. So it is critical that you are both on the same page.

You need to have a candid conversation with your spouse about this. It’s a huge, life-changing decision that will have an affect on everyone around you. If you think that you can do this without their consent or support, you are going to waste a ton of time. If you have that conversation with them and find that they are not warm to the idea, you will have some work to do to bring them around. That is your absolute starting point. Feel free to share this website with them and tell them to email me if with their questions or concerns.

If you find that they are already receptive to the idea, you can start to work together to move through the next step; knowing your financial situation.

2. Know your financial situation.

Knowing your financial situation will help you determine opportunities that are within your reach and which ones are not. This step includes figuring out how much cash you have to use as a down payment, how much you have to use as a reserve, as well as sources of these funds.

I recommend that you create a simple Personal Financial Statement for yourself. A Personal Financial Statement is an outline of your financial picture that will give you a good overview of how your personal finances are doing.

You should update it on a regular basis (every three to six months is my personal preference), and this will really help you to know your financial situation.

Also, if you plan to finance the purchase of your business through a bank, a Personal Financial Statement will most likely be required anyway, and it’s always better for you to know where you stand before the bank does. Having this ready shows initiative and an understanding of basic financial matters, which will help you better develop a positive relationship with your bank.

You can download the Personal Financial Statement tool that I have put together for free as a part of my ULTIMATE Getting Started Toolkit for Buying a Business. This is a great resource for starters and is totally free for you. In this toolkit, you will also get other useful tools that I have created such as the Owner Earnings Calculator, Business Loan Payment Calculator, and others.

3. Determine what a good business looks like.

Let me make this clear. A good business is unique to each person, what may be a really good business for me might not be a good business for you. It all depends on what is important for you to find in a business. So it is important to outline some basic characteristics of what a business should have in order for it to be a consideration for you.

One of the first questions I ask clients is this; What does a good business look like to you? Almost always I get a super-vague, “I’ll-know-it-when-I-see-it” answer accompanied with a blank stare. I’ve even had people tell me that they were hoping I could tell them what a good business looks like! Of course, I’m flattered that they think I can read their mind, but the truth is I have no idea what a good business will look like for them!

The good news is that I can help you figure this out, to help you figure out what is important to you at this moment. And my approach is a relatively simple one. In fact, it’s so simple that many people I teach it to are surprised to learn just how simple it is. The reason that I keep it simple at this stage is because most of you are still very new to the idea of buying a business, and frankly you don’t have enough experience to know what criteria to consider.

In the beginning, you will want to keep your criteria simple – this will result in keeping your options more wide open. As you work through this process you may see things that you want to stay away from, or things that you like, but they are things you didn’t know to consider in the beginning. So start out simple and adjust your criteria of a good business as you learn more.

Again, my free ULTIMATE Getting Started Toolkit for Buying a Business includes a tool for outlining the 5 basic criteria that you need to identify before moving forward.

4. Get connected to the right people.

How many times have you heard this said…”It’s all who you know.”

The truth of the matter is that it really is all about who you know, so get out there and start meeting the right people. And the people that you should start getting connected with are out there trying to find people just like you! I call these people “connectors” and they are great people to know.

Buying a business will expose you to subset of professional people who work in the world of small business sales, and many of these people are the connector-type. They spend a lot of time out there in the marketplace attending public and private networking events, and they are usually happy to meet people who want to buy a business.

These people include business brokers, accountants, commercial real estate agents, attorneys, and local chamber of commerce members. Many of these people are on LinkedIn, so that is a great place to start finding them.

Work hard to get the word out to everyone you know that you are interested in buying a business, and that you welcome introductions to professionals in the local business community. Getting connected to these professionals will help get you plugged into the people who are the first to know when a business owner is ready to sell, putting you at the front of the pecking order.

By following these four guidelines, you are going to put yourself in a much better position to buy a business.

If you haven’t done so already, signup for my email list and I’ll send you my ULTIMATE Getting Started Toolkit for Buying a Business for free!