|Buying a business? Better do your homework
While you might see financials and glossy brochures,
you also want to do your own legwork.
Talk to customers, suppliers, current employees and former employees.
Sellers should have no problem giving you names and phone numbers.
(Be very wary if they don't.)
Then go out and find additional names that aren't
on the lists.
Talk to anyone who has purchased the same opportunity. Would he or she do it again?
Is what you're learning on your own in synch with
the information the seller is sharing?
Sussing out a good business opportunity
What is it you're really buying? A lot of scams and bogus opportunities
make big promises but are sketchy on details. Get specific early.
What is the product or service you'll be providing, who are the
customers and why would they come to you? Even more important, exactly
what will the seller be giving you for your money?
Scammers will count on the fact that no one wants to admit ignorance. If a seller glosses over details by saying something like, "But I'm sure I don't have to explain all this to you," look out, says Mark Weaver, director of the Entrepreneurship Institute at Louisiana State University. "You've just been conned."
With a genuine business, the seller should fill in
all the blanks. The transaction should be totally transparent: You
know exactly what you're buying upfront, and no topic is off-limits.
"You've got to go through it all," he says. "You're
talking about putting 50 to 60 hours a week into a business."
If your potential customers are businesses, talk to
local professionals and find out where they currently get the supplies
or services you intend to provide. What do they think of the company
you're investigating? How do local or national trade organizations
that serve that profession view the operation? How do the prices
and products compare to the competition?
The No. 1 "factor in having a business is: Is
there a customer?" says Jeffrey Fox, author of "How
to Make Big Money in Your Own Small Business," and president
of Fox & Co., a marketing consulting firm.
While a potential business owner can, and should, analyze the financials, one real issue is what customers and potential customers think of the business. "You have to go out there and talk to existing customers," he says.
Try to experience the business like a customer, Fox
says. Call the toll-free phone number. Go on the Web site. Try to
buy the products. Go to a trade show exhibit. "Do it not with
a jaundiced eye, but with an unclouded eye," he says.
Beware of business marketers who hawk any business
as an easy-money proposition. They are "assuming all the buyers
are the same," says Fox. The truth is, a genuine business won't
be a perfect match for every potential buyer because it will require
certain skills. Not everyone has the same skills.
Be very suspicious of any seller who uses high-pressure
tactics (or even subtle manipulation) to imply that if you don't
buy immediately you'll lose the opportunity, says Weaver.
"Anybody who is putting that kind of pressure on you is trying to get you to make a decision without having the tools or information to make a good decision," he says.