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What are the pitfalls in buying an LPO?

I was asked this question recently, and this was my answer….

Unfortunately there is no simple answer to your question because you will never find two LPO’s which are identical. There are many different factors which effect a LPO the key one being the demographics and target market of your customers.

LPO’s are good little businesses, however, it may not be your cup of tea. It is crucial that you undertake due diligence on the business you are purchasing. Due diligence at the end of the day is a process whereby you understand completely what you are purchasing and buy with your “eyes wide open”. Its important that when you sign the contract you can sleep at night knowing that you do not have any regrets and can sleep at night.

My advice to you:-

1.Don’t pay too much – your interest repayments will kill your cashflow.

2. Ensure there is good future growth. Develop a good practical 5 point business plan on how you are going to grow your business before you start. Once you get started you will be too busy to step back and strategies. It is important that you strategise first and once you are busy, you can mindlessly implement the strategies which you have created. If you haven’t already read, please read my LPO Benchmark Report and learn more about the growth potential in LPOs.

3. Understand the numbers. Christopher Skase once said that his business empire started the fall once he took his eyes off the numbers. You need to understand the profit and loss, margins, LIPOM statements, box rental, etc, etc – this is one of the fundamental principals when running your own business. Understanding the cashflow cycle of your business is vital – cashflow is a common issue for all business owners.

Don’t be disheartened if you don’t end up purchasing the first LPO you look at – it is very rare that anyone buys the first one you fall in love with.

Please let us know if we can be of service.

The LPO Advisor

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