It is important that prospective business buyers are well equipped with the knowledge to spot the opportunity that matches their goals and provides the best chance of success. Whether targeting fast food, retail or any other industry, it is the responsibility of the buyer to be well informed and diligently investigate each opportunity.
Let’s look at the key indicators should be analysed to choose the right business that will help you realise the financial and lifestyle rewards of a successful business ownership;
1. Return on Investment (ROI) / Initial Investment
ROI is directly related to the inherent risks of a particular investment. If the ability for an investment to generate predictable returns is less certain, the risk is consequently higher. Request the average initial investment so you can project ROI.
2. Financial Performance
It is important to ask yourself “How much money can I make?” To answer this question you should know the following details of the business; the average unit volume (AUV), average overheads (rent, utilities, etc.), and average operating costs (food, paper, labour, etc.) to help compute net operating income (NOI). If this information is not available or incomplete you should carefully consider if it is the business for you.
3. The Success Rate
Buyers should understand how many similar businesses have closed and the underlying reasons for failure – what will your success rate most likely be?
4. Fee and Cost Structure
Identify and study all fees and costs associated with a business, including initial fees, continuing fees, equipment and food costs, franchise fees, advertising fees, penalty fees, and hidden fees and costs.
5. History of Litigation
Be wary of similar businesses with a long history of litigation.
6. Support and Infrastructure
Study and compare all support areas: initial training, construction (if necessary), grand opening support, ongoing support, marketing, technology, and so on. The more support you receive for the initial fee and ongoing royalty fees, the better.
Contact similar business owners to discuss their satisfaction, but don’t limit your contact to existing businesses. Contact former owners as well and understand why they left the system.
8. Product or Service
A superior product and service with established and recession-proof market demand will increase your chances of success.
9. Systems and Procedures
Much of the consumer appeal of a business lies in the fact that, no matter where they go, if they patronise one of that systems restaurants they’ll get the same quality of service and product they would get anywhere else.
Do you need to work harder to protect the integrity of the brand and to protect it from litigation? The brand is a concept’s face to the world. It is the company’s name, how that name is visually expressed through a logo, and how that name and logo are extended throughout an organisation’s communications. A brand is also how the company is perceived by its customers and the associations and inherent value they place on your business.
Business ownership is not for the faint of heart. It is hands-on, hard work, and long hours. However by using this checklist you can run your business on the front foot with a true understanding of how the business is placed.
If you are looking at purchasing a business and would like me to review the fundamentals with you look me up at http://www.zjl.com.au