The quickest way to become a business owner is to buy an existing business. You’re not starting off from scratch, and there are customers and systems in place already.
But success in such ventures doesn’t come from the purchasing decision alone. Timing is also a factor. That said, when’s the right time to make a move?
When the Business is Profitable but Underperforming
You’ve found a business that’s already making money. But for some reason, it’s not hitting 100% of its potential. Maybe the owner hasn’t been great at marketing, or maybe they’ve let costs run up too high. This is often the sweet spot for buying because all you often need to do is tweak things to make it better.
You’ve got to have a keen eye to spot opportunities waiting to happen. With many businesses listed for sale in Melbourne, Australia, or other places near you, you won’t have a hard time finding a good fit. However, look beyond the surface and do your research, ensuring the asking price aligns with the business’s actual earning potential. Most importantly, buy what best fits the business journey you’re looking to take.
During Economic Downturns or Industry Shifts
A recession hits, and suddenly, lots of business owners are rushing to sell. This is when smart buyers make their moves. Prices often drop because sellers need to move quickly, and if you’re ready, you can scoop up something amazing for way less.
Look back to 2008, when during the financial crisis, tons of hotel restaurants went under. Entrepreneurs who had the resources and vision were able to acquire properties at favorable terms and transform them during the recovery. They revamped menus, cut waste, and gave a new lease of life to these struggling eateries.
Buying during these shifts can work wonders. So, keep an eye on market analysis and trends. If an industry seems a little shaky now but has long-term promise, that could be your chance to make amazing profit margins down the road.
When the Owner is Retiring or Exiting
The business owner could be retiring or just burned out after years of running the business. These owners have two options: sell or shut down. The latter often doesn’t sound appealing. They may even be open to teaching you everything, from supply chain optimization to market approach, so you know how it all works.
Plus, retiring owners are often flexible with sales agreement terms. They might offer seller financing, which means you pay them back over time instead of all the cash upfront.
Before a Market or Industry Boom
Maybe there’s new tech coming out, or regulations are changing in a way that favors certain businesses. If you buy before everyone else catches on, you can position yourself quite strategically.
Say you’re interested in electric vehicles (EVs). Right now, governments worldwide are pushing incentives for clean energy. If you buy a small EV repair shop today, you could grow it massively once demand explodes.
The trick here is staying ahead of trends. So, do your research, follow industry news, and talk to the pros. Figure out which sectors are set to grow exponentially and jump in before the rest do.
When You Have the Right Skills and Capital
You can’t just buy any business and expect success. You need two things: skills and money. Without both, even the best opportunity can fail. Skills mean understanding the industry. If you’ve worked in retail, buying a clothing store makes sense. If you’ve been in tech, maybe a software company fits better.
On the other hand, capital means having enough cash or access to business loans or other financing options to cover the purchase and initial costs. There’s the upfront price, working capital for day-to-day operations, and other unexpected expenses, all dependent on you as the new owner.
That said, assess your strengths and weaknesses honestly. If you lack experience in an area, either learn it or hire someone who knows it all too well.
After Thorough Due Diligence Confirms Business Valuation
So you found a great-looking business. Revenue looks solid, customers seem happy, and everything checks out. But before you buy it, do your due diligence to uncover hidden problems. Things like bad business credit scores, legal issues, or declining customer bases are what you should focus on.
Start by looking at organizational paperwork like financial statements and balance sheets. Is cash flow consistent? Are profits growing? How about expenses? Are they under control? Ask for tax returns, bank statements, and invoices, too, to ascertain financial health.
Next, check the customer service. Are clients sticking around? Is turnover high? How reliant is the business on one or two key accounts? Diversified customer bases are much safer.
Finally, dig into operational details. Does the equipment need replacing soon? Are suppliers reliable? Are employee contracts solid? When you have all these convincingly nailed down, you’ll have the true market value and can now make a move.
Closing Thoughts
Knowing when to buy an existing business is just as important as the buying decision itself. By understanding market cycles, seller motivations, and optimal timing windows, you’ll be prepared to move confidently when you find a business that aligns with your goals and offers genuine potential for growth.
