By Bruce Hakutizwi
Often times when people look to buy a business, they’re really doing so in order to buy themselves a job. But that’s not as easy as it sounds.
Buying a business isn’t just an easy path to getting the job you’ve always wanted. Being a business owner is tough work on its own–taking on the responsibilities of an employee can further complicate the process and, in some cases, impede business success.
On the other hand, some individuals looking to buy an existing business and make a quick profit underestimate how much work a business owner must do to keep the company afloat. Asking the right questions about your expectations as a future owner before purchasing a business will help you avoid making a disastrous entrepreneurial decision.
Buying a business or a job — what’s the difference?
For many people, owning is a business is a full-time job. They show up every day, just as they would if they were reporting to a superior at a regular 9-to-5 gig, and carry out hands-on tasks or interact with customers. Although they own the business itself, people in these roles are responsible for taking on more active responsibilities to ensure the company’s success.
They may adhere to a weekly schedule or daily commitment and not enjoy the same flexibility many business owners do. These types of entrepreneurs feel more comfortable controlling daily operations as opposed to handing off those duties to someone else and overseeing the business from a distance.
But some entrepreneurs aren’t seeking a new full-time job. Whether the new owner is a retired individual looking to stay moderately busy in her downtime, or a thriving entrepreneur who owns several other businesses, many prospective business owners are looking to apply their management skills to a new business to make a profit. These people are interested in appointing others to carry out daily responsibilities and only making high-level decisions or crisis calls. Whether it’s hands-on or distant leader, identifying the role you want to play as the owner of your new business is crucial before making a purchase.
Choosing your role
There are a variety of questions you should ask yourself to determine what role you want to play as owner after buying a business:
What are my business goals? Is your fundamental business goal to spend a few hours a week reviewing financial documents and monitoring industry trends? Or do you want to support your business financially by contributing your skill set to help make a profit? While your ultimate goals might change, listing out your initial objectives should help you determine what kind of business you should buy.
How do you picture a day in your shoes as a new business owner? Envisioning a typical day in your role as owner will help you decide how hands-on you’d like to be. Do you want others to expect you to be on-site 5 days a week? Or would you rather be available primarily by telephone, dropping in occasionally to monitor business production?
Are you comfortable handing off daily responsibilities to other people? If you can’t stand the thought of someone else making staffing or day-to-day finance decisions, you may want to be more involved with running your business than you originally thought. Micromanaging your team from afar can create strife within management, so make a decision on whether or not you want to delegate, and then stick to it.
The business you buy should allow you to act as owner in the role you’re most comfortable in, so it’s important to answer these questions during your evaluation process and before you finalize a business purchase.
Ask the right questions of your seller
Asking the right questions and getting the right information from the business seller is equally as important as the questions you needs to ask yourself. For any prospective business sale, make sure you clearly identify what the previous owner’s role was regarding daily responsibilities. This will impact both the company’s value and your ability to take on the new business seamlessly. That way, you’ll better understand what to expect and how you need to fill the previous owner’s role to avoid the business taking a hit. Determine whether or not there are employees within the company who could potentially take over those responsibilities or if the duties carried out by the former owner sound like activities you’d enjoy doing yourself.
If you find the previous owner has been supporting the business in an employee role, make sure you inquire about the business’s true valuation. There’s a chance the owner may not have been taking a salary if he was comfortable enough to break even without hurting his personal finances. Agree on an appropriate salary for the business’ owner and subtract that from the company’s estimated profit to determine how much the company is truly worth.
Remember, you can always change the scope of your goals once you own the business and spend some time making it your own. But answering these questions and taking all of the above into consideration will go a long way towards helping you avoid getting off on the wrong foot. By following this advice you’ll be putting yourself in the best position to succeed.
Bruce Hakutizwi is the U.S. and International Business Manager for us.businessesforsale.com. Bruce is passionate about helping businesses succeed and regularly writes about entrepreneurship and business growth. Connect @BizForSaleUS.