We see this one all the time. A buyer walks into a functioning (and profitable) business and decides that they want to make changes – big changes.

They bought this business because it had some potential for growth coupled with a fairly successful track record. They gut the infrastructure, they completely remodel, they toss out all of the old operating procedures, they expand. In less than a year they are completely belly-up and have to shut the doors.

What happened? They went TOO BIG TOO FAST.

What do we mean by that?

We mean that as a new business owner, you need to be very careful about decisions that will drastically change the functioning business you bought. The reason the business functions is the current methods work – so instead of fixing what isn’t broken you will need to take some time and figure out what you should change before you change anything.

Here’s an example. If you bought a restaurant that serves pizza but hasn’t been turning the best profit, you shouldn’t change the menu to burgers and redo the décor to try and increase profits. You should spend some time figuring out why the profits aren’t where they should be. In this example, the reason the numbers are down is because the grumpy long-term staff have been driving customers away. Your new menu and fresh décor will only make the problem worse by driving away the faithful regulars who were willing to put up with a grouchy waitstaff for amazing pizza. All this business needed was a new set of employees, not a costly remodel.

Here’s another example. If you bought a small but profitable manufacturing business with the goal of expansion, you probably shouldn’t spend a small fortune expanding the manufacturing facility as soon as you get the keys. In this example, the reason the company is profitable is because they have stayed small. They are able to fill the niche they are in without the major overhead that a much larger facility would require. By spending a few months understanding why the previous owners never chose to expand you can save yourself the horrific and expensive failure of a facility too large to be profitable.

The lesson here? Don’t try to go big without understanding why going big hasn’t happened before. Learn from the mistakes (and the successes) of the previous owner before you try to implement any big changes of your own.

Are you considering buying a business and you have questions about what you should and shouldn’t change? Have you bought a business in the past and made too many changes too soon? Please feel free to ask questions or share your experiences here!

Michael Monnot

941.518.7138
Mike@InfinityBusinessBrokers.com