If you see it's got plenty of potential, you can get that clunker of a business off the lot and running in no time.

You've got guts. That's right-you've got some serious cojones if you're planning to buy a business that's failing and, armed with only your brilliance, turn it around. Some may call it arrogance. On the contrary, we at Entrepreneur know you're just confident in your skills. You're eager to learn and willing to believe that not only can it be done, but you're just the person to do it.

OK, now that we've exhausted all the high school counselor platitudes, you're going to need to know the nitty-gritty, down-and-dirty practical side of buying a struggling company and turning it around. For starters, before you put everything you have into buying a business, make due diligence a top priority. Look closely at the company's financial statements, customers, location, competitors, licenses and zoning, as well as its reputation. Check whether there are any lawsuits or liens against the company, and find out why the business is for sale in the first place. "If the person who's selling the business won't open up [or] give you everything you need to know, don't walk-run away," advises Marc Kramer, author of Small Business Turnaround (Adams Streetwise).

In your investigation, research the market you're about to enter as well. "You don't want to buy a business in a declining market," says Kramer. If the industry is stagnant or declining, or if all your competitors run the same kind of business, this probably isn't the right opportunity. You can look for warning signs by checking out trade associations, talking to industry experts, going to trade shows and reading trade and general interest publications. If you end up discovering, for example, that trade show attendance has been declining or that industry leaders aren't even able to put a trade show together, that's a big clue.

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This article was originally published in the November 2001 print edition of Entrepreneur with the headline: Fixer-Upper.

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