How To Identify Profitable Business in 5 Steps

When investing in a running business, it is important to check what makes it profitable. Otherwise, you end up buying the wrong business that has no return on investment. Here is a list of things to check before investing in five simple steps;

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1.??? More Assets than Liabilities

Assets are the list of company properties that bring money. They keep growing the revenues and business profitability. They are things like machinery, transport vans, computers and intellectual property. Liabilities are the things that take away money from the business. These can be bank debt or amounts owed to the suppliers (accounts payable). Before you invest, ensure that the assets are more than the liabilities.

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2.??? Enough Cash flow to pay for the normal expenses without relying on external financing

When the business can pay for normal expenses without looking for outside finance, it means it is stable enough to be passed on to another owner. Make sure the business you want to invest in has enough cash to cover its expenses every year without any form of borrowing. This way, it will be easier to grow it when you take loans in the future.

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3.??? Sales system that generates good leads

A business will only be sustainable if it can generate leads who become customers and pay for the products or services. Good businesses that are worth investing in have a good system that helps source quality leads and converts them into paying customers. It is important to note this before you invest in the business.

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4.??? Year over Year (YoY) growth

Businesses that grow every year are good options when looking to invest. If the profits and revenues are growing each year, this is a sign that the business will maintain the trend after you acquire it. Make sure to look closely into their books and note an upward trend in the numbers.

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5.??? A good marketing system

The world is changing fast and businesses in this era need to invest in good marketing systems. This ensures the products and services are in the customers’ minds every time they think of buying. There are many forms of marketing that can be used in this digital era. The business you want to buy should be no exception. Check to understand that they have a proper marketing system before you make the investment.

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These factors are all important when investing in a running business. If you need help analysing any business before buying, message me to book you a slot in my private consulting group today.