How to Buy a Distressed Business and Turn a Profit

Buying a business can help you break into the world of entrepreneurship or grow an existing company. It’s an efficient way to acquire assets, staff, and customers. But buying a business can also be risky, especially if you have your sights set on landing a great deal on a business because it’s struggling to stay afloat. You may believe that you have what it takes to save a distressed business from bankruptcy and turn it into a money-making machine. To increase your shot at success, think carefully about how you're going to adapt the struggling business so that it thrives under current market conditions.

Consult a Professional

Consider talking to a professional before buying a struggling business. For example, Perpetual Resources offers accounting and business consulting that can help you evaluate a business acquisition decision and ensure you choose the right business. You may also want to hire a lawyer before signing a purchase and sale agreement. Your lawyer will walk you through the due diligence process to minimize the risks associated with purchasing a business.

Do Your Due Diligence

According to The Balance Small Business, due diligence typically occurs after signing an intent-to-purchase agreement. This process involves looking through all of the business records to gain an understanding of the business value, legal matters, and accounting information. Due diligence will also help you uncover discrepancies between what is reported and what is really going on at the business.

Be sure to follow an in-depth due diligence checklist to ensure you don’t miss any problems before agreeing to the purchase. For example, you’ll need to have your lawyer and accountant review and verify the business’ financial information, material contracts, customer information, employee information, legal issues, physical assets, real estate, intellectual property, and  business structure.

Consider the Business Structure

After buying a business, you may decide to change how the business is structured to better facilitate your growth plans. Accion Opportunity Fund explains that most businesses move from simple business structures to more complex options as they grow. Structure changes often occur when businesses change owners, seek financing, or want to take advantage of legal protections and tax benefits available to LLCs and corporations.

For example, you’ll want the protection of an LLC or corporation if you intend on hiring employees or taking out new business loans. It’s easy to file your business formation paperwork online with the help of online formation services, so you can skip the extra legal fees here if you’re on a tight budget. Just make sure you do your research first!

Create a Marketing Plan

A solid marketing plan can help you minimize some of the problems that are hurting the business, such as increased competition or issues with brand alignment. Think about how you can create better customer engagement through strong branding and marketing. For example, you could create an eye-catching banner to display on your website and social media pages letting customers know that you’re rebranding to better meet the needs of your audience. You could even launch a YouTube channel to help build a following. Grab a YouTube banner template and customize it with your business branding so your viewers recognize your company when they come across your channel!

Use Process Mining to Uncover Opportunities

Process mining can further help you uncover opportunities to improve a struggling business. Using process mining, you can identify business processes that are inefficient and could be improved to save time and reduce costs. This might involve using data analytics to identify trends and patterns in existing business processes. Not only will process mining help improve efficiency at your new business, but it can also facilitate risk management and idea generation. Get started with process mining by identifying data sources and mapping out a timeline for your analysis.

If you’re thinking about buying a struggling business, make sure you evaluate your options carefully. Take the time to talk to an accountant and lawyer and do your due diligence. Consider how you’re going to market the business, structure the company, and use process mining to identify opportunities.

You’ll need to work with a great business accountant as you conduct due diligence for a business acquisition. Contact Perpetual Resources to learn what we can do for you! Call 651-994-9550 today!