Deciding to buy a business is an exciting, yet scary process. Developing a business plan can help ensure that you know where you want to take your business and how to get there. As a result, you have a "roadmap" to help you achieve your goals as a business owner.
Defining Your Objectives
Before entering the market, you should realistically examine your objectives.
There are a number of reasons for why you should buy a business.
- Your business objectives may be met faster and at lower cost.
- You can expand rapidly into a new location by buying another business that's in the same market as yours.
- A business you're interested in buying may have a particular technology that can allow you to substantially upgrade the products and services offered, increasing your influence over the current market.
- You may decide that the best way to utilize surplus manufacturing capacity is to acquire another in the same industry.
- You may find the best way to take advantage of a strong but underutilized distribution channel is to acquire a company with compatible products or services that can be marketed through the same network.
Only when you’ve identified your objectives can you begin to evaluate whether an acquisition is the best strategy to achieve them.
The Importance of the Plan
Do not give in to the temptation to bypass the planning process.
There are two main categories of why buying a business fails:
- Logic failures (“It looked like a good idea but wasn’t”);
- Process failures (“It was a good idea that just didn’t work”).
Adequate planning is the best way to avoid logic failures. Process failures are avoided by properly executing the transaction after a plan has been made.