What to think about when taking over an existing business?

Every now and then, I get a friend or family member saying that they're interested in buying some type of a business. So, this wouldn't be about starting a business, but there might be an existing business. Maybe it's a convenience store, or maybe it's some type of healthcare practice. Whatever it might be, they say, "Hey, I'm going to buy this from the existing owner, and I think it's going to be a great business."

They'll often say it generates this much money, and I only have to put this much in, and it feels risk-free. What I tend to tell them, and I don't want to be one of these naysayer people, is, "Possibly." But what you always have to think about is, why are they selling it? Sometimes, there's a good reason why they're selling it. Maybe they're retiring, and they don't have someone to pass the business on to. They may see in you kind of the person that they would love to see running that business going forward. That could be a very legitimate thing.

But oftentimes, there might be a situation where they might be pumping up some of the numbers. They might be showing you the business in the busy season or on the busy day. So, I wouldn't take—especially if it's a small business that doesn't have auditing or really strict accounting practices—I would observe the business for a very long period of time.

I would take your own data as to whether the numbers you're hearing about are real. I also wouldn't discount how much effort and work the existing owner is putting into it, and what happens to the business if they're no longer there. So if all of that works out, and if it really does make sense, then yeah, you might be on to something.