CHAPTER 6 Identifying the Characteristics You Want in Your Business Flashcards
(15 cards)
What type of business should you buy?
An established, profitable business with recurring customers and slow, steady growth.
Why avoid businesses with high growth?
High growth brings high risk, new customer demands, higher costs, increased competition, and higher purchase prices.
What is meant by ‘enduring profitability’?
A business that is consistently profitable year after year due to recurring customers and a proven business model.
Why is recurring revenue important?
It reduces sales and marketing costs and makes future revenue more predictable and less risky.
What is the ideal size of a business to buy (in terms of pretax profits)?
Between $750,000 and $2.0 million in annual pretax profits.
Why should you avoid buying a struggling or uneven business?
You would need to reinvent the business model, which is risky and difficult.
What are the advantages of low-growth businesses?
Low risk, predictable operations, lower purchase prices, and manageable workload.
How should your skills influence the business you buy?
Buy a business that matches your general management strengths and doesn’t require skills you lack or dislike.
What lifestyle factors should you consider before buying a business?
Willingness to relocate, family support, energy to work long hours, and the flexibility you desire in your lifestyle.
What is the difference between a job and a business?
A job depends on your direct involvement; a business has systems allowing others to deliver value, making you replaceable.
Why is buying a business better than self-employment?
Business ownership allows scalable income, return on investment, and a valuable asset you can sell.
What types of businesses should you avoid?
Those overly dependent on the current owner, or where the owner delivers all services.
Should passion influence your business choice?
No. Passion can cloud judgment. Focus on profitability and fit, not hobbies or causes.
Why isn’t price on the list of priorities?
The purchase price is negotiable and influenced by financing; more important is whether the business fits your goals.
What is a major threat when buying a business?
Losing recurring customers during the ownership transition.
