What to Look for When Buying a Business to Flip
Today we often stumble across many programs on television that have to do with “flipping”. Now, when we think of flipping we automatically associate it with flipping a house, but you should know that a house is not the only thing that can be flipped! Many entrepreneurs have come to realize that they can buy an already established business, revamp and rebuild it and then sell it within a few short years in order to gain a healthy return on investment.
The trick is to rebuild the business in a way that makes it a more appealing prospect than it was when you purchased it. This can be a risky task for some entrepreneurs who may not have the proper knowledge to make this happen. An experienced entrepreneur will be able to scope out businesses with flipping potential, however, many businesses that seem appealing may not necessarily be the most profitable opportunities. Check out these tips to help you identify a flippable business:
1. Evaluate the Current Condition & Value: Although many entrepreneurs believe that they are able to rehabilitate any established business, it is important to evaluate the current condition of the business you are interested in flipping. Having said that, you will have to be on top of the market since you are looking to snag an opportunity listed below market value in the industry and location you are interested in. This will give you the opportunity to buy low, sell high and help you earn a significant profit from your flip.
2. Ask Yourself – “Do you have what it takes to make this business grow?”: In order to flip a business and make it sellable, you will need to evaluate whether or not the business can grow any further. Once you have identified a business you would like to purchase, create a “flip” plan containing everything you will need to accomplish from the time you purchase the business, all the way to when you would like to make the flip. This will help you think about everything you are going to do to increase the value of the business. It may even be wise to create a quick, draft “flip” plan before purchasing a business in order to help you make the decision whether or not the business is worth purchasing to begin with and if you are the right person to make the flip.
3. Can you make it grow?: If you are looking to flip a business in a short period of time, you will need to assess its growth potential. You will have to think about the quick changes you can make in order to achieve your goal. The trick is to search for businesses with strong financials, especially those that have sales that are recurring and growing. If these numbers are not appealing, then it is wise to move on with your search.
4. Positive Cash Flow: A business that offers a positive cash flow is ideal when you are looking to flip. It does not necessarily have to have a huge cash flow, but you will want to make sure that you will be able to increase the flow in a short period of time after buying the business.
5. Forget Complicated: Looking for a more “simple” business to buy can shorten the return on investment when you are looking to flip. It is wise to avoid purchasing complicated businesses that require employees with specialized skills, have lengthy sales cycles or have to deal with complicated regulations. Having such barriers can lengthen the timeline for your return on investment.
From an entrepreneurial standpoint, purchasing a business to flip and purchasing a business for long term investment are two completely different scenarios. You do not need to have any significant attachment to the business when your intention is to flip it, you will just need to know how you can make it grow in a short period of time. However, purchasing a business that you want to be a part of for a significant amount of time requires a great amount of passion and dedication to turn it into something amazing. It is up to you to figure out which route is the one that will take you where you want to go.
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