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Start-Ups

How to Flip a Small Business

By Garrett Spence   |    April 11, 2017   |    9:48 AM

 

What does flipping a business mean exactly?

It means that an entrepreneur buys a company, thereby making an initial investment, then does some work to improve the business and then sells it for a profit. In recent years this has been a very popular way for savvy business people to make a substantial return on their investment. However easy as it may sound, when you flip a business, it is vital to get involved with a firm that will require a minimum of time, money and work on your part to make it viable. If you want to flip a business you need to have all the right elements in place so as to guarantee you'll make a profit.  Here is what to look for in a business if you want to flip it.

Buy Something Solid

The worst businesses to buy are those based on bad and unsustainable ideas, or firms that offer no value-add proposition in a market already saturated with quality players. If a business looks like it needs a lot of work to repair it, then that is not a company you want to try and flip. Instead look for a business that has a strong customer base, that supplies a product or service that will continue to be indispensable and is still in a decent state of affairs. Aim to find a business that has systems, technology or other operating models that could easily be upgraded or improved so as to make the company profitable.

Buy a Business that Generates Cash Flow

When flipping, only look at businesses that can continue to generate cash flow, despite being overhauled by you and flipped. Do not buy any business that will require large asset investments or that stands to depreciate rapidly within the next year. You can't afford to burn up all your budget whilst revamping the business in order to sell it. You need a business that will continue to generate capital whilst you overhaul it.

Buy Something Simple

You only want to look at flipping businesses that can be sold easily and run with a minimum skillset. Buying a complex company is a bad idea; not only is a specialized firm more tricky to turn around, it is less likely to be something that someone else would want to buy. Nobody wants to acquire a business that will require huge investments in highly trained staff, complicated training or complex skills to run it.

Get a Fabulous Deal

Your purchase should be a great deal on paper. This means not buying the first business you find but studying lots of different businesses to analyze the cost of buying relative to the cost of upgrading it. Flipping businesses is about falling in love with the deal, not about falling in love with a company. How much profit you make will be determined not only by investments but above all by purchase price.