03 Feb Tips for the Corporate Refugee – When Buying a Non-Performing Business Can Be A Good Thing
Most people shop for a business that is generating a good profit. But sometimes you discover a business that is not making money or even losing some. Sometimes the business is still appealing because of its niche in the industry, or location, or fact that it has all the equipment and fixtures in place, or that it is growing in sales and already has a good customer base to start with. Walking away from these is our general word of advice! But some of these businesses make great investments for the right person with the right skills, time and passion.
Find A Business You Can Improve by Better Management: Keep in mind that most non-performing businesses often suffer management challenges that can be significantly improved. Michael Gerber, author of The E-Myth, says “If they don’t fail outright, most businesses fail to fully achieve their potential. That’s because the person who owns the business doesn’t truly know how to build a company that works without him or her… which is the key.”
Look for businesses that fail to deliver excellent customer service, or ones that do not have an effective marketing plan, measurement and control programs, or ones that lack specific processes and systems, and or ones missing other business basics that you can fix and that will make a difference once you do fix them. Observe and understand how the seller manages the business. Many business owners start off creating companies around a skill they have, but they never get around to developing a thriving business that can sustain rigors of the marketplace.
Again, for the right person with the right skills and ambition, and non-performing (one that is not making much money), might be a great investment. Be confident you can fix it and keep in mind to always “buy based on potential, but pay based on performance – the most recent performance”.