Buying a business can be complicated. There are details to think about, papers to sign, and people to talk to. It’s easy to forget an important detail or two. What follows are ideas by people who have experience buying businesses, to help you make sure that you don’t make mistakes when buying a business.
1. Make Sure That You Don’t Sign Documents in Your Own Name
It’s important to remember that when you buy a business, you shouldn’t buy it in your personal capacity. When you sign as yourself, you lose a number of protections, and you accept personal liability for the business. You should always buy a business as a representative of another business that you own.
2. Not Paying Attention to the Reason Why a Business is on Sale
It can always help to know what the owner of a business has in mind when they sell. If you learn that a seller is selling because they are in financial difficulty, you know that you have leverage, and can negotiate. If you learn, on the other hand, that the seller merely wishes to sell their current business to start a new one in the same locality, you need to ask them to sign a non-compete agreement.
3. Assuming That the Business You Buy Will Remain the Same After the Purchase
Buyers of businesses often assume that they will stay the same. It’s important to realize, however, that having a new owner often changes businesses. The new relationships that a new owner establishes with employees, and the new policies that they bring in, can change the way a business functions. It’s important to take such potential changes into account when you buy a business.
4. Not Adequately Grasping the Concept of Goodwill
It’s important to think about what kind of loyalty the customers of the business that you buy, have. If the loyalty that they feel is to the original owner of the business, they may take their custom to whatever new company the original owner establishes. If it’s the business that they are loyal to, however, you may be able to count on retaining them.
5. Not Performing Adequate Due Diligence
To perform due diligence on a business that you plan to buy, you need to investigate everything you can about the company, from a legal or financial standpoint. It’s important to remember that due diligence should be done before you sit down to purchase negotiations. You need information about what liens there are on the business, what suppliers are unpaid, what debts the business owes if there are lawsuits against the company and so on. When negative information comes to your attention, you need to use it to decide whether you want to go ahead with the purchase.
6. Not Bringing a Business Broker into the Picture
You may figure that doing all the work yourself is a good idea when you buy a business. It’s important to not wing it, however. You need to make sure that a lawyer goes over the documents, and a certified public accountant or tax professional looks at the financial information of the business to tell you if there are any unpleasant surprises on the company’s books.
7. Making Too Many Changes, Too Quickly
Many people buying a new business for the first time can’t wait to go in and announce major management and productivity changes. It’s a bad idea to move forward too quickly, however. You need to get to know the company over a month or two before you decide on major changes.
If you’re considering buying a business, you need qualified advisors guiding you through the process to make sure that you don’t make mistakes. Buying a business is no time to try going solo. Your team can help you make sure that it’s your business that buys the business, finds out what information lies hidden in the company’s books, and performs due diligence. When you go in armed with the right team and the right information, you can be sure that you’ll make great choices.
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This has been a JBF Business Media production.