When seeking to continue to build your financial portfolio, adding investments is one idea that many choose to pursue. One way that such investments are typically made is by buying part of a business. Buying into an existing business means that you become one of the main stakeholders, owning a portion of the business itself. While this is something that is done frequently, quite often are new business owners not aware of the many factors that are related to making this significant financial decision.
Of course, buying part of a business may sound overwhelming, but there are many factors that make it a beneficial decision.
• Established company client base. One of the benefits of owning part of a business that is established is the fact the client base is already set. While a new business has to attract customers and build a group of returning clients, one that is already functioning will have this taken care of. This will allow the business owners to focus more on customer service and maintaining client retention and increasing the number of clients.
• Ease of expansion. If you happen to buy part of a business that is looking to expand, it will be much easier to do with a company that has already made a name for itself and gets good feedback from its clients. It’s also easier to get an unsecured small business loan for expansion when the company has a proven track record of sales.
• Focus on business improvements. You may like challenges and, thus, purchase part of a business that may need to make a few changes to improve. Luckily, the company has a plan of operation in place so that you can focus on how to improve it for the company’s overall success.
• Current owner knowledge. One of the best factors of buying part of a business is that the current owners will be very familiar with the company and can show you what has and hasn’t worked for business operations thus far. You, equipped with this knowledge, can then come up with innovative ideas to benefit the business.
As there are many pros to buying part of an existing business, there are just as many risks of shared ownership of a company. It is best to keep these factors in mind as you make your decision.
• Current owner practices. It would be an absolute nightmare to purchase part of a business where the owners mismanaged funds. Upon learning more about a business you may want to purchase part of, be sure to research all financial records.
• Bad reputation. A good use of customer feedback is to learn how the company fares amongst past clients. A company with a bad reputation will likely struggle with being successful.
• High turnover. In addition to clients being indicative of a company’s progress, the employees can serve the same purpose. If there have been numerous employees during the business’ lifespan, especially due to multiple resignations, this would be something to keep in mind as a problem area when taking the company on.
• Differences between owners. If the current owners are not open to change or new ideas, you could possibly run into difficulties with trying to take the company to the next level in terms of expansion, increasing profits, or employee and client satisfaction.
The choice to buy part of a company should only be made after carefully considering all factors, good and bad, that are involved. It can also be helpful to seek the help of a business adviser who can answer your questions and give guidance as you take this big step.