After the global pandemic, many people started to consider alternate ways to secure their financial future. As surprising as it may seem, the majority of these considered buying or starting a business.
It actually makes good financial sense. While the market can be volatile and events like the pandemic can cause real issues, you’ll feel more in control of your finances and destiny.
There are over 1.3 million businesses in Canada. An impressive 98% of these are deemed small businesses. A large proportion of these firms are classified as micro firms, meaning they have fewer than five employees.
If you already have some financial backing, you’re likely to find the prospect of buying a business more attractive than starting one. If you choose the right business you should find it easier to return a profit.
Here’s what you should ask before committing to buying a business.
What Range Of Businesses Do You Sell?
You no longer need to live in the same area as your business. The power of the internet means you can run a business from anywhere. Of course, if you want to be hands-on, you’ll need to be geographically close.
However, if you’re not worried about being hands-on or are prepared to move, you should consider where the business is located. It can significantly affect the taxes and other charges you pay.
That’s why it’s worth asking about the range of businesses offered. A business for sale in Edmonton may have a comparable price to one for sale in Vancouver. But Edmonton has lower taxes and other business charges. That means it’s a better option as you’ll be able to maintain higher after-tax profits.
A good agency will offer you a range of businesses across industries and locations.
Why Is The Business For Sale?
There are many reasons why someone may sell a business. The most obvious are the owner is retiring or a partnership is separating.
Most reasons are genuine, but this question still needs to be asked. The owners may be selling because they know the competition has just won a critical contract or that the market is about to decline steeply. In short, they are getting out while they can.
You need to know why they are selling, and you should verify that this is a genuine reason.
How Long Has The Business Been Trading?
78% of businesses in Canada survive their first year. By year five, only 50% of businesses survive. It’s worth asking how long the company has been trading. By looking at this, the way it’s run, and the order/sales books, you should get an idea of how well it is likely to do in the future.
The longer a business has been trading the more established its systems and hierarchy should be. This is worth looking at closer as you may need to think about replacing staff, such as the CEO.
Are the Books Up To Date?
Every business should submit financial records at the end of each year. If the business doesn’t file, they will be fined. That’s not your concern.
However, if the business doesn’t have up-to-date books you won’t be able to see if they are truly profitable or not. Equally, you will need to question why this is the case. It could be poor management or it could be an attempt to hide something bigger.
If you’re looking at a business without up-to-date books then you may want to demand they are corrected or step back.
Are There Any Ongoing Lawsuits?
A business should disclose if they have any ongoing lawsuits. It’s advisable to ask to ensure they don’t. A lawsuit could cause severe financial stress for the business. Alternatively, it could mean issues with any of their products. That could make a dramatic difference to future sales and your ability to run a successful business.
It’s worth noting you can find out if any business has been involved in litigation by requesting a report. It’s worth doing this and comparing it to the business owner’s answer.
Who Are The Target Customers?
A business should have an established customer base. It will depend on the product. For example, the latest tech is often targeted at younger people.
You need to assess their product and their target audience. It will help you decide the level of competition and whether you’re likely to encounter difficulties continuing to trade in the same way.
Summing Up
The final decision is yours. It’s advisable to collect as much data as possible before you decide whether a business is a viable investment or not.
But remember, a business that is floundering can be purchased for less. If you have some good ideas for restoring its fortunes, it can still be a viable investment. It all starts with asking the right question.