Originally Published: April 3, 2026
Buying a business is often much lower risk than trying to start one yourself, and this is one of the reasons it has become so much more popular. Buying an existing business brings advantages like an established customer base, revenue stream, and operations. But what should you look for in a business that you buy? Some of the answers will surprise you.
Alignment with your personal goals
One of the first things you should look for when buying a business is alignment with your personal goals. For example, if you want passive sense to purchase a company that will require a lot of your active involvement, you need something that you can be a stand-by passive investor in and simply collect the money. You should also think of the industry market fit. Do you really want to buy online business ventures when you only understand in-person retail? Lastly, think about the location and the scale. Is the business in the right place? Does it have the right size for your requirements?
Financial health and performance
The next stage is to look at the company’s financial health and performance. This will tell you whether it’s worth paying for at the asking price or not. Many business sellers will try to elevate the amount that they charge you because they want to get extra money; that’s just human nature. That’s why it’s so important to look at the last three to five years of tax returns, bank statements, balance sheets, and profit and loss statements. From this, you should be able to figure out things like:
- the gross margins
- income before taxes
- depreciation and amortization
- the bottom line
Also check for trends in earnings. Obviously, companies that have seen significant growth over the last five years are more valuable than those that haven’t. Ballooning revenue suggests that the company still hasn’t saturated its marketplace or is highly innovative and doing the right things to make it successful long term.
Proper legal and organizational structure
Also, you want to check the legal and organizational structure of the company. Getting this in order makes it much more likely that you can turn it into a thriving success in the future.
For example, check the entity documents like the articles of incorporation. Also go through things like shareholder agreements, licenses, permits, and zoning compliance. Check that the company is fulfilling its legal obligations in these areas to save you unnecessary costs in the future. If the brand has existing contracts for equipment or with vendors, then go over these and make sure that they are not too restrictive for your plans.
Proper operational setup
Lastly, it’s a good idea to check the organisation setup of the firm. This tells you more about how the firm runs day to day. For example, you’ll want a list of the equipment, vehicles, and intellectual property the company has. You’ll also need to go over the processes and systems it uses, including its supply chain, IT network, and document procedures. If there are issues here, you can factor these into the price that you offer.
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