Self-Assessment is Important Before Searching for a Business to Buy
Why is self-assessment important?
Not only is the acquisition of a business one of the most important financial decisions you will ever make, but it is also quite often a major lifestyle change. While there is certainly no requirement that your personal interests conform to your business purchase, a thorough and realistic assessment of your personal interests may help to minimize the risk of acquiring a business that may quickly become monotonous or uninteresting to you.
For those individuals who do not have firm ideas of what type of business they might be interested in or would be suited for, a list for personal consideration shown below may help bring your thoughts into focus.
It would be unlikely to find all of your ideal options and conditions embodied in one, single business. For practical purposes, however, you may choose to trade off the negative aspects of a low status business for the benefits of high income potential or trade off your reluctance to work on weekends for the opportunity to travel. The important thing is to give clear consideration to each option and condition as you analyze each business opportunity.
Self-Assessment: A List of Things to Consider
1) Take an inventory of your financial resources. You should identify the actual availability of all financial resources in the following categories:
- Actual liquid funds (cash) available for a down payment.
- Actual liquid funds (cash) on reserve for transition expenses, start up costs, working capital, business charges, learning curve
- Other current sources of income expected to continue into the future
- Future (anticipated) funds to be received
- Unencumbered assets available as collateral, notes receivable which could be factored, real estate
- Other sources of financing including business partners, relatives, friends
- Retirement funds such as 401K and pension funds that qualify for tax free benefits
2) Examine your resume and work history. Construct a “red lined” version that very accurately reveals your actual skills, work experience and extent of business knowledge. It should be used as a reference as you consider different business opportunities. Additionally, it can be extremely useful in enabling a business broker (or other professional advisor) to direct you toward the business most suitable to your background.
3) Hobbies, interests, talents, and skills are a good source of inspiration for the types of businesses you might enjoy and in which you may have some knowledge.
4) Do you want to be an Absentee Owner or run the business yourself? Do you intend to operate the business with a manager? This may be important to you if you have a limited amount of time available to personally operate the business. Remember, not all businesses “lend themselves” to absentee-ownership conditions.
5) Have you carefully determined your minimum income requirements? Do you need a fixed amount of earnings every month from the business? Do you need to pull money out immediately or can you wait six months or a year before making any withdrawals?
6) Do you want to manage a staff or prefer non-personnel intensive? Do you consider yourself a “people person?” Some people shun or fear taking management responsibilities. Do you enjoy (and are you comfortable) supervising and motivating others? If not, consider businesses which are not labor intensive.
7) How much importance do you place on high growth or expansion? Are you very concerned about operating a business that has full potential to grow and continue expanding into the future? Or, would you be satisfied to maintain a business at its current level of operation?
8) How important is High Status or Unpretentiousness of the business? Is it important that you own a business that has a name, product, service or asset base which will project a certain image? Or, would you be happy with an unpretentious business as long as it was profitable and met all of your other requirements?
9) Do you require time freedom or have issues about the kinds of hours involved in the business you choose? Is it important that you own a business which allows you to “come and go” as you please? Or, would you be satisfied with a business that required fixed hours? If time freedom is really important, avoid a franchise business that requires owner-involvement and specified hours of operation, as well as certain retail businesses which require that the owner be available to serve the customers.
10) Will your family be involved? Is it important that you own a business where you can employ other family members? Are you wanting to create a certain number of jobs for your family members or close friends? Do your family members really have the needed skills and qualifications to help you succeed with the business? Are they willing to make the same sacrifices you are making?
11) Does it matter if the business has travel requirements or do you prefer not to travel?
12) Do you want a business in which you would need some or a substantial amount of training? Are you willing to learn new skills, new business “buzz words,” new techniques and procedures? Or, is it very important that your business be one with which you are already quite knowledgeable and experienced?
13) Is it important that your business not require your personal involvement on weekends? If so, does the business have dependable employees capable of handling weekend operations without your supervision?
14) Are you a morning or night person? Do you like to retire early in the evening and wake up early in the morning? How important is it to you that the demands of the business not disrupt your present life style?