Which is a good business to buy? A quick checklist – Part 1

Which is a good business to buy? A quick checklist – Part 1

The world is in the middle of a deadly pandemic that has conceivably put the greater part of the world into a state of quarantine, with lockdown after lockdowns imposed amid growing fears of second COVID-19 wave that has brought businesses to a screeching halt and startups shut down temporarily only to aggravate the ongoing crisis. These really chaotic, perilous times don’t guarantee any success in business. Leaving the timing aside, which of course is marked by uncertainty, the question that needs to be answered remains: which is a good business to buy?  There’s no easy way out: you need to filter the options down to a set of possibilities. Preliminary due diligence of a business is done to determine whether if there is anything hiding in the closet—the obvious and the not so obvious—that could affect the value of the company.    

Deciding which is a good business to buy:

The objective of preliminary due diligence is to analyse and evaluate a business good enough to help you qualify (or disqualify it) for buying. Compared to formal due diligence, a detailed process that is conducted just before finalizing a deal, it can happen during the search and discovery phase when you find out if the business is the best fit, with greater clarity on your buying criteria.  Here is a roadmap for primary due diligence for purchasing any business:

Asking the right questions:

The process of qualifying any business boils down to asking the right questions in order to get the answers for informed decision-making. The following questions are worth considering:                                         
# Is this an established business? Or is a startup or turnaround business?  
# Does it fall within the range bandwidth? (dollar amount in purchase price and revenues)
# Is it your preferred business location?
# Are you equipped with the right skill stack to manage the business?
# Does the business under consideration match your present lifestyle?
# Do the earnings of the business warrant a standard living?
# Do you know why the seller is selling his or her business?

Visiting the business

The process of buying a business cannot be worked out entirely over WhatsApp or via internet.  You may have to meet the business owner personally or business broker, if required, and finally make a visit to the business.  If the change of ownership is highly confidential, then you may require earning the trust of the business owner first. Successful business purchase may need frequent visits on-site. Don’t be discouraged if these visits exceed your initial plans as they lead towards finding the right one. Revisiting different types of business at a personal level can explain why you’d like a business and why you may not.  We’ll continue with more factors in the concluding part of the blog.

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