What Are the 3 Things You Need to Know Before Buying a Business?
Aug 15, 2024When thinking about buying a business, whether it's an existing company, a new venture, or a franchise, there are three crucial factors to consider: People, Process, and Profit. These three P's can help you make an informed decision and avoid buying a "lemon."
First, look at the people involved. Ensure that the business has a strong team in place to support the vision, aligned with the company's mission and committed to working there. Understand the team's dynamics, compensation structures, and market value to avoid a situation where the owner's departure could cause the business to fall apart.
Second, evaluate the systems and processes in place. Well-documented processes, such as loom videos, documents, and templates stored in a central location, are essential for a smooth transition post-acquisition. Ask about the systems, where they're stored, how they're shared, and if there are clear employee and client onboarding and offboarding processes.
Finally, analyze the financials. Look at the profit and loss statement, specifically the gross margin and net margin, to determine if the business is profitable. Consider any expenses that are personal to the owner or will change once you buy the business, as well as any new expenses you'll incur. Ensure that the business can produce a profit soon after the acquisition and understand the cash flow implications of your purchase.
By focusing on People, Process, and Profit, you'll be well-equipped to make an informed decision when buying a business. These factors are also crucial for building a sellable business, so even if you're not currently in the market to buy, covering your bases in these areas will put you in a better position to sell your business in the future.
What you'll hear in this episode:
05:09 Solid processes key to business growth and saleability.
10:38 Cody Sanchez's advice: Focus on people, process, profit.
If you like this episode, check out:
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