Self-proclaimed entrepreneurs often dream about founding the next big company. The past few decades have shown a whirlwind of people starting with nothing and ending up at the helm of multi-billion-dollar companies. From Facebook to Uber to Amazon—and an innumerable slew of others—it’s apparent that there’s a strong founders’ spirit right now. This has of course led to the total disruption of many industries.
But starting your own business isn’t the only way to be the top dog at a successful company. It’s also possible to take over a company when the CEO decides to retire. There’s going to be ample opportunity for this in the near future, as Baby Boomer business owners are estimated to hand over about $10 trillion in business assets in the next 20 years.
The question is, should you buy a business from a retiring entrepreneur?
Why Is the Owner Retiring?
It’s unlikely that you’re going to know more about a certain company that the person who founded it. While many people retire and sell their businesses simply because it’s time for them to do so, there are others who time their retirement based on what’s happening with the company. You need to do more than kick the tires of a business before buying it.
Do Your Really Understand the Business?
Maybe you’ve always wanted to own a restaurant. It’s certainly a dream for many people. But do you really know what goes into running that kind of operation?
Establishments that have been working a certain way for many years sometimes don’t receive new leadership well. Even if you have the best intentions, there are many intricacies to already-established organizations that you simply can’t comprehend from the outside.
In regard to the restaurant example: Do you know what’s kept people coming back for so many years? Is it the food? The service? Or is it the owner’s ties to the community? Because if it’s the last option, you’re going to be in for a big surprise.
Has the Owner Been Diligent in Upkeep?
You don’t want to buy a business that hasn’t been maintained the right way. Let’s go back to the restaurant example. There are some businesses that work best when you don’t try to fix them unnecessarily. Sometimes change can be a bad thing. But with most companies, it makes sense for management to upkeep their operation.
Sometimes older entrepreneurs don’t put enough emphasis on modern considers, such as web presence or social media marketing. Thus, taking over an operation and updating web domains, online outreach and advertising strategies, you could potentially move things in the right direction.
You’ll also need to take a thorough look at the financial situation of the company before you make an attempt to buy it. Even apparently healthy organizations can have issues if they’re in the midst of a legal battle, or have a lot of outstanding debt.
Is This a Company That Has Potential for Sustained Success?
Kodak was once the most important name in cameras. They even developed a version of a digital camera way back in 1975! The problem was that they made the majority of their money developing film, which quickly declined as smartphones became commonplace. It can be hard to identify a Kodak when you’re thinking about buying a business—especially when things are going well for the company. Just always be aware of potential future risks to profitability, and how you might address those.
Is This an Industry You Want to Be in for the Long Haul?
You shouldn’t own a company if you don’t feel invested in it. Purely looking at numbers and ignoring the day-to-day element of ownership will come back to haunt you in the long run. This isn’t something that you can just put on the shelf, unless you’re planning on hiring a full management team to run the show. But this likely isn’t a viable option unless you have substantial capital behind you. If you don’t feel a draw to the business its industry, you’re likely going to burn out, and then be forced to find someone to buy the company from you.
How Do You Get Along with the Employees?
People have a tendency to overlook the human element of taking over a business. Things are going to be much different depending on how well you get along with the staff. Sure, you can clean house and bring in your own team. But this often doesn’t make sense when a lot of the resident workers are competent and good at their jobs. Don’t worry about it too much if you’re off-put by one or two personalities. It might be an issue, however, if you don’t feel comfortable around a majority of incumbent workers.
There are bounds of opportunities for buying businesses when the owner decides its time for retirement. But be aware that not all of these are going to be right for you. Consider these points before you take over for a retiring entrepreneur.