When buying property, they say buy the worst house on the best street.

When it comes to purchasing a business, if you are looking to grow and succeed where others haven't, look for the worst business with the most potential that you can begin to capitalise on quickly.

Areas of Weakness You Can Capitalise on 

To help you, here's a list of five areas of weakness in an existing business that you (the new business owner) can turn around very quickly for little cost:

1. Not having a database of their customer
2. No perceived competitive difference
3. No brand
4. Disengaged staff
5. No marketing strategy 

1. Not having a database of their customers

Some sellers consider a list of customers as "goodwill".

Its only goodwill if the current owner has the ways and mean of being constantly in contact with them, and does. Many don't. 

If you can find a business that has old and dated record keeping, it will take you some time, but very little cost to collate this information to create a valuable and working customer database.

Old recordkeeping will also have the business valued less.

For a quick win, it is the existing customers you should be talking to first. If they are happy to purchase from the business once, providing they have had a good experience, they will do so again. 

Customers leave a business only if they die, shift location, or have a mate in the industry, AND - a whopping 87% leave because of perceived indifference. They think the business owner just doesn't care about them purchasing.

Communicating regularly to your customers will not only stop them leaving but will also have them coming back to purchase again meaning more sales for you.

2. No perceived competitive difference

Many businesses are like this and often referred to as "me too" businesses. You should have no trouble finding one.

These are the businesses that are good at what they do, but there are others doing the same. In a crowded marketplace, it is a downfall of the existing business owner if they have lacked the ability to pick one thing that will set them apart from the rest.

There are 3 types of unique selling points (USPs) or competitive differences:

1. Actual - e.g. you DO deliver in under 15 mins
2. Created - e.g. delivered HOT, or it's FREE
3. Claimed - e.g.  More Fresh Ingredients on Your Pizza than any other Pizza Restaurant

Now we all know a Pizza is a Pizza - yet depending on your circumstances at different times you would choose differently. Which leads to my next point:

3. No brand

As the marketplace becomes more and more global, and it becomes easier to source products on eBay, Amazon and the like, it is becoming more and more important to have a distinctive brand. 

While this takes a little longer to build than the collation of a database, when it comes time for you to sell the business, if done well, it will reap you good returns. 

Why? Because even if someone else has the same product and services it is still not your distinctive brand, nor your loyal followers. This is why you will be able to ask for a premium price.

If you are looking at a business with no distinct brand, then you have an opportunity to build something really special for the future.

4. Disengaged staff

It's the people that make the business. If there are disengaged staff you will find an underperforming business. How do you know if they are disengaged? Mystery shop the business - when the business owner is not there. 

Look for the level of cleanliness, how they answer the phone and ask the owner, "How willing are staff to put in extra hours if needed?". 

Be aware, this could be a double-edged sword - if you don't have great management skills, then stop reading right now and ignore this point. Do make sure the business you purchase has some really good key people that are switched on to the outcomes of the business.

If you have great people skills, then what an opportunity.

5. No marketing strategy 

A business that is profitable with little marketing is a gold mine to a potential purchaser.

Now I'm not talking "advertising" here, nor the obligatory yellow pages listing. When I say marketing I am referring to an overall strategy to win new customers, keep existing ones, and increase the average lifetime value of each customer.

What does the current business have in place now?

If it's not much, and if the business owner cannot tell you what they spend and what the return is, again, the value of the business is lowered and there is more potential for you.

"Something to Ponder": Their Accountant is Cheap and an Order Taker

If you look at the profit and loss and see that there was very little spent on Accounting you can be sure that the business up until this point has not put too much value on measuring the performance of the business and finding ways to increase productivity. 

It's an old saying but it is true for all parts of a business “what you can measure you can manage."

Here's a suggestion: Ask the business owner, "What have you been measuring?" It will tell you a lot about the business and its potential. If they haven't been measuring anything then there should be some good quick wins to be had.  

On a side note: Go over the numbers with a fine-tooth comb so you can be confident they are correct.