We are in the process of buying our first business. We have terms, LOI and would love advice on best next steps to think about as we move forward.
There are many things that are key to buying a business in a market but a few points to consider will be your competitors, suppliers and demand.
First you must know what competitors are in your market. This allows you to see how much influence they have depending on their size.
Depending on what business you are going into you must know the bargining power of your suppliers have because this could lead to high fixed costs unless you can benefit from economies of scale.
You must also look at if there is a high enough demand for what your business is offering in the market and if it would have sufficient demand in the long-run.
Furthermore, another point to consider that ties this all together is whether your market is dynamic or static as this can play a huge role in profitability.
I'd say that market knowledge is incredibly important. You can buy a business at any revenue point, but if you don't know much about the market it's in or the industry, you could very well tank it.
Do your due diligence and understand your exact plan and intentions of what you'd do with the newly bought asset to make sure that it has the resources needed to continue doing it's best and growing.
Good stuff here already -- I would add three things:
1. Why is the other party selling?
2. How does the purchase valuation compare with other deals in the industry/space/community?
3. What are the trends in revenues, sales, margins and production (if relevant)?
If you wish to discuss, send me a PM through Clarity for 15 free minutes.