It’s common knowledge that most businesses don’t survive their first year. The majority of those that do will still struggle to turn a significant profit. Fast forward five years down the road, and most of those seemingly successful exceptions have also shut down.
It sounds like a lot of doom and gloom, but there’s a silver lining to all this negativity; struggling small businesses present a unique opportunity to those who see the potential for success. There’s potential value in buying a business seemingly destined for disaster, turning it around, and making it profitable.
If it sounds easier said than done, that’s because it is. We never said it was simple. But buying and saving a struggling business remains an opportunity to consider. The following is a step-by-step guide for those interested in pursuing this option for their next business venture:
Do your due diligence
The first step in deciding whether or not to buy a struggling business is to determine whether or not it has any potential. Your job is to turn the business upside down from an analyst’s point of view in order to uncover any untapped value. You should also be on the lookout for any underlying red flags that signal the business is a bust no matter what. If the current owner is interested in selling, they should be willing to open up the books and anything else you want to examine. Take the opportunity to probe into the nitty gritty as much as possible.
Study the competition
The business you’re thinking about buying is struggling. But across town, its primary competition is a booming success. Your job is to understand why. The fact you’re not yet the owner puts you at an advantage in terms of getting a comprehensive understanding of the competition. Consider presenting yourself as a potential customer or investor and indulge their questions, knowing you’ve got nothing to hide for now. Doing so may clue you into ways to improve the business or force you to admit there’s no hope. Either way, studying the competition is sure to prove beneficial.
Write a strong business plan
Writing a business plan for an existing enterprise might sound ridiculous. But if you’re under the impression you could turn a struggling business into a booming success, then you ought to convert that belief into a dynamic blueprint for the future. Consider it a proof of concept; if you devise a strong business plan based on market analysis, it suggests your plans could work. If your plan falls flat, it’s probably a good indicator that the business is beyond saving.
Bring in outside experts
Any savvy entrepreneur worth their salt knows their limitations. In other words, you should have a sense of what you know as well as what you don’t know. When it comes to deciding whether or not to buy a struggling business, hiring outside consultants could prove key to getting the best assessment possible. A B2B market research company can help you find the experts you need to get straight answers and honest analysis. They might not tell you what you want to hear, but they’ll give you the information needed to make the best decision.
Make changes
This goes without saying but needs to be said anyways. The last thing you want is to buy a struggling business and refuse to change anything. As the saying goes, ‘the definition of insanity is doing the same thing over and over and expecting a different result.’ Take it to heart and work towards improving the business rather than counting on blind luck to decide your fate.
Be ready to pivot
Your first ideas regarding improvements might not be the right call. With this in mind, be willing to pivot when necessary. Stubbornly insisting on doing the same things over and over is what got the last owner into trouble. Don’t make the same mistake. Be prepared to pivot!
We all know the chances of a business lasting longer than a year are slim. Even those that make it several years are more likely than not to struggle financially. This is where an entrepreneur of your caliber enters the picture. You see what’s working and what isn’t and have an idea of what it takes to turn things around. It doesn’t mean you’re guaranteed to succeed where they failed. But it does put the odds more in your favor.
Julie Steinbeck is a freelance writer from Florida. She enjoys covering topics related to business, finance, and travel.