If you’re buying another company, asking the right questions must be part of your business plan – or else your acquisition could lead to destruction.

Even the greenest of business owners understands that you don’t always have to start a company from scratch to expand your entrepreneurial footprint. In fact, acquiring an already-established business can relieve you of some of the pesky responsibilities of jump starting a company from ground zero. But it still won’t be easy: if you’re considering purchasing a company, there are several crucial questions you must answer to avoid your dream of business growth ending in a financial disaster.

Questions to Consider

What will buying another business do for you as an entrepreneur?

When acquiring a new business, most entrepreneurs enter the deal with the hope that the new acquisition will help them expand their business ownership in some way. For many, this means gaining an even larger piece of the market your current business serves.

Will buying a business help you sink your hooks into a larger portion of the same industry? Or perhaps you’re hoping to expand into a previously untapped market to try your hand at something new.

Whether you’re hoping to build up your brand’s reputation within your current market or diversify your interests with a new venture, make sure you’ve clearly and thoroughly evaluated how adding another company to your plate will benefit you and your existing business.

What do you know about the current industry of this new business?

Whether you started your own business previously or have purchased an already-established business before, you have likely assessed the climate of the industry you were looking to break into before you made any business moves. Like before, you’ll need to assess the competitive landscape and health of this new business before you make a decision.

Be sure to consider not only the buying trends within your industry but also trends in the political and social climate. For instance, if you’re interested in purchasing a health benefits provider for small businesses, the uncertain future of the Affordable Care Act under President Trump should definitely give you pause. Familiarizing yourself with all factors surrounding the business you hope to buy is essential to properly preparing for market entry.

Is your current business healthy enough for you to focus on this acquisition?

Taking on a new business is obviously going to require time, energy, and resources. If your current business isn’t fit to survive with less attention, you run the risk of both businesses collapsing.

First, evaluate the financial health of your current business. If you find any red flags in your fiscal records, hold off on your acquisition so you can focus your energy on rectifying your company’s current financial issues. If all your monetary activities check out, ask yourself if you have the right personnel in place to handle daily tasks, maintain a steady profit, and cover responsibilities you normally perform.

By ensuring your current business is financially and structurally sound before bringing on another business you have a successful example to model your new acquisition around..p

What’s the financial outlook of this decision?

Buying another company is a serious investment. Like any other big business decision, you’ll need to consider all financial facets of the decision before moving forward.

Beyond basics like list price and overhead costs, consider more complex questions like:

  • Where will you realistically get the capital?
  • Do you need a loan?
  • How quickly will you be able to break even on the purchase and begin to profit?
  • You must also consider the financial health of your current company – has it already turned a profit?
  • Do you still owe money to a bank or investor?

Once you have a solid plan for obtaining the necessary capital and a thorough understanding of the future, ask yourself:

Have I considered all the options for growing my business?

While purchasing a business that already exists can eliminate some of the groundwork, it also brings about a unique set of challenges. Taking over someone else’s business will mean adopting or adjusting internal processes, making tough decisions about current employees, and maintaining a business built on a plan you didn’t create.

All these challenges can sometimes outweigh the benefits of acquisition. Before you choose to purchase another business, consider if franchising the business you have or building another business from scratch might serve your entrepreneurial interests better. At the end of the day, the goal is to strengthen your business and yourself as a business owner and entrepreneur, no matter how you get there.