Founder and CEO, LQ Logistics LLC.
Entrepreneurs don’t have the steady paychecks that come with corporate jobs—their livelihoods depend on their ability to grow and scale their businesses. But growing and scaling just one business is risky because if that business declines or fails, it could signal the end of entrepreneurial life and force entrepreneurs to enter or re-enter the corporate world.
To maximize their chances of success, entrepreneurs should pursue more than one revenue stream. One of the best ways to do so? Strategically purchasing businesses. By purchasing existing companies, entrepreneurs can get a headstart on generating ROI without the hassles, time and financial commitments that come with starting new ventures from the ground up.
There are various businesses for sale at any given time, but if you’re an entrepreneur, you shouldn’t jump to purchase just any business. Instead, adopt a more strategic approach.
1. Find A Businesses That Complements Your Existing One
Carefully consider how any business you might purchase will help you achieve your professional and personal objectives. In my experience, buying a company complementary to your existing one is usually the wisest move you can make.
While you can certainly opt to purchase a business that has nothing to do with your existing line of work, such as buying a fast food franchise when your primary business is a digital marketing company, I recommend against it. By finding a business that complements your existing one, you can leverage both companies to share resources and reduce costs. For instance, I decided to purchase a clinical lab because I was outsourcing drug testing for my logistics company. I realized that instead of doing so, I could keep that money for my team and myself and, in the process, streamline drug testing at my logistics company and my other businesses.
There might be many types of businesses that can complement your existing one, but to determine the best one to purchase, identify your current pain points. If you run, say, a real estate company, it might make sense for you to buy both an interior design company and a home inspection company. But after conducting an analysis, you might conclude that your real estate company is in greater need of connecting clients to a reliable home inspection company, and that’s the one that makes more sense to purchase at the moment.
2. Do Your Due Diligence
Before signing any paperwork, you should do your due diligence to research the business you’re considering purchasing, with guidance from attorneys, accountants and financial advisors.
First and foremost, examine a business’s financial statements, assets, liabilities and contracts. Make sure you get access to original copies and work closely with the right professionals to sift through them. Some people will paint a pretty picture to sell their companies. Don’t believe their words—believe the numbers you see on the page.
It’s also crucial that you look into any potential legal or regulatory issues. Purchasing a business in an industry that’s heavily regulated or likely to face regulations in the future could require a significant time investment that you might not want to make.
Additionally, evaluate a business’s customer base, market position, competition and growth prospects. Explore the state of the business’s industry as well, including trends. All of this information will help you pinpoint any potential challenges or opportunities. For example, if you realize that the company has been losing a substantial amount of its customers to its competition, you’ll likely need to overhaul its marketing activities.
Your research should include evaluating the company’s reviews, too. Comb through reviews on different platforms to understand how customers perceive the company. If most reviews are negative, that could signal that the company is a bad investment—or that you’ll have to rebrand it if you move forward with the purchase.
Don’t just read customer reviews, either. Read employee reviews on sites like Glassdoor and Indeed, as these reviews will cue you in on the company’s reputation as an employer and how easy or difficult hiring might be if you go through with the purchase. However, given that former employees (not just current ones) often leave these reviews, you should holistically assess the company’s existing team and culture. Try to get one-on-one time with employees to learn more about them. Find out the team’s skills, expertise and dynamics to see if the team aligns with your vision and can support the business’s future growth.
3. Create An Effective Transition Strategy
Buying a business is only one part of the equation. To generate revenue, you need to create an effective transition strategy.
Think through how you’ll optimize operations, develop the team, build strong customer relationships and stay on top of financials. Be prepared to make some tough calls, such as overhauling workflows and restructuring the team. If you don’t have experience in that particular industry, don’t hesitate to ask for help.
Ultimately, however, while you should revamp the business to align with your goals and vision, try not to go overboard with changing things. After all, you purchased an existing business so you wouldn’t have to reinvent the wheel—and could instead focus on driving your entrepreneurial goals forward.
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