Grading The Business You Want To Buy

Let's get one thing straight right now.   If you are looking for the perfect business, stop looking, it doesn't exist.   And if you really want to buy a business you need to settle!  That's right buying a business is a lot like being in a bar at 2am...ponder on that for a moment.   Seriously all businesses have their drawbacks, risks, pain points, skeletons in the closet and warts.     Your job is to find them all, understand them completely, decide if you can manage them and if they will stop you from buying.

Let look at some of the business attributes you will want to rate:

1. Income - This is my number 1 concern.  You are not buying a hobby, you want to buy a future  income stream.    So you want to know if it is provable, sustainable, and can you grow it.
2. Length in business - I love businesses that have been around for more than 5-10 years.   You should too.   Customer habits are hard to change.
3. Books and records - Are they in good shape?  Will your CPA be able to verify historical info.
4. Recurring revenue - I like businesses that have steady, recurring revenue.   So does everyone, so you should too.
5. Employees - Long term, low or high tech, blue or white collar, turnover, labor issues, w-2 or independent contractors, and so many more issues to understand.   Bottom line, employee issues are tough and inherently universally hated.    But are a necessary evil in business.
6. Location, location, location.   Could be critical.   Don't buy a business more than an hour from home.  Commuting gets old.
7. Established Industry -  Trying to launch new products or business ideas  is the hardest thing to do in the business world.   I would rather buy or try to grab market share from an industry already making money.
8. Strong gross margin - Slim margins can disappear quickly. I like businesses that can make up ground fast on one sale!
9. Upside potential - Businesses that rely on drawing from traffic or very local (like a gas station) can't grow very much.    Business that can grow with  marketing, networking, and outsides sales .
10. Solid business model -  is it a real business? Does it have a niche? Will it last or is a fad? Franchising is based on this premise and it works well.  Conversely, I hate multilevel marketing (MLM's).   
11. Skill set necessary to run the business? Does it need a license? Thrives on your talents, won't suffer from your weakness- Fellow bizquest blogger Richard Parker talks about this in depth.    Whatever business you pursue should make the majority of its money based on your skill set.    You hire the rest.\
12. Competition level- I usually don't care much about competition, but it is something to look at and understand if it is increasing or decreasing.