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How to spot a good investment when buying a business

Finding the perfect investment isn’t easy. If you’re looking at buying a business, the search to find one that matches all your criteria can sometimes be a long one. Whether it’s the asking price, location, the industry you’re looking to enter, or another factor entirely – there are a lot of businesses out there that you could buy.

So how do you spot a good investment? In this article, explores some green flags you should look out for when you’re speaking to sellers. Businesses with these traits might be undervalued or overlooked – and could be a highly profitable investment for savvy buyers.

Word-of-mouth marketing

One valuable trait to look for when buying a business is strong word-of-mouth marketing. Business models that lend themselves to recommendations or naturally draw in new crowds can keep a steady stream of customers coming into the business while you focus your attention elsewhere.

That could mean a hospitality business set in a highly unique location that people will want to recommend to friends. It could be an events business where every attendee in the room is a potential client for your next event. It might also apply to businesses that provide less glamorous but necessary services on a regular basis—think things like window cleaners or car repair.

These businesses will usually be working with a steady market share – after all, there are only so many cars you can clean in a city or town. But if you can deliver a reliable service that your clients will want to recommend, you could save heavily on marketing expenses.

Freehold property

Buying a business which is freehold instead of leasehold, meaning you also own the property on which the business sits, is another way to find a strong investment. Owning the property, which is likely to increase or hold its value over time, gives you a financial safety net.

While you might be paying a higher asking price, it is generally much easier to finance the purchase of a freehold business because banks and lenders look favourably on the value of property. Leasehold businesses might require more in terms of security, personal guarantees and higher deposits.

Split business partnerships

While you can’t necessarily filter for this while searching for businesses to buy, one way to find a good deal is to ask the sellers why they’ve decided to sell. In cases where an owner has split from their business partner or is giving up the business for personal reasons, they are more likely to value finding a buyer quickly. They may be less inclined to haggle the price and could be selling the business at a lower asking price than usual. It might sound cynical, but at the end of the day buying a business is a huge investment – so you should explore every available avenue to try and find the right one.

Digital businesses

Buying a digital business such as a website or e-commerce store might not be the first thing that comes to mind when you think about buying a business. But these can be potential treasure troves for buyers who can spot the potential for growth or who have practical experience they can use to expand an online-first business into a brick-and-mortar one. Look for low-overhead businesses with repeat customers, subscription models, and regular income.

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