5 Mistakes to Avoid When Buying a Small Business

5 Mistakes to Avoid When Buying a Small Business

All budding business types want success. And, they want it now. Patience is sometimes put aside in the hunt for a successful business. The next Jeff Bezos is on every corner in every business district. Alas, there are more failures than successes and there are many reasons why. In this post, we’ll take you through 5 mistakes to avoid when buying a small business and what you should actually do. Let’s get looking.

Thinking Finding a Business Won’t Take Long

Don’t rush into the deal. Slow and steady wins the race. When looking for a business to buy the potential purchaser will need to do the numbers. The statistical numbers that is. Studies show that finding and completing a purchase of a business can take anything up to 2 years. The earliest you may expect to find a good one is 1 year. You may also look at anything up to 100 businesses before finding a good one. Of those 100 you will be impressed by 15. This is one of the many mistakes to avoid.

Lack of Due Diligence

The current owner may have rouge reasons to sell and want to get out quick. An uneducated or over-eager buyer will miss evidence of malpractice or dodgy paperwork. The buyer will look at things from his or her point of view and not reality.

Buying a profitable successful business is by no means cheap. If a business is cheap then there is your first clue. The buyer must get as much information as possible. Collect information on everything. Financial records, annual reports, quarterly profit and loss reports, employees, staffing and building or machinery lease agreements if relevant.

Then, investigate the peripheral aspects of the business. Industry experts, suppliers, customers, competitors and past investment companies are all fodder for your knowledge arsenal. What they say or the figures they provide will help you gain knowledge of the business and whether the claims of the vendor match that of the facts. And, even if the business is suitable for you.

Finally, profit and loss numbers may have been manipulated. Determine why the sale is happening. You may find a brand new well-funded competitor has brought the shop front across the road. This is a valid reason to sell but only if the vendor is upfront about it.

Signing Without a Company Name

If you are signing agreements then beware. The building lease, contracts, loans and all legal issues make you liable for all sorts of nasties if things take a wrong turn. Set up a company to buy it and conduct the management. Your personal assets are at risk if you don’t.

business negotiation

Not Negotiating Properly

You need to negotiate until all things are covered. Even the tiny things that may not seem relevant. Get into all the details regarding the acquisition and have them written up. Define responsibility as to who is in charge and liable for what. The responsibility will shift to you after the sale has gone through, make sure you’re not going to be in hot water if things take a turn.

Ignoring the Value of the Business

Charging headfirst into buying a business will cause nothing but grief in the long run. Not conducting a thorough analysis of financial records is business suicide. Things to check are income and loss statements, cash flow statements, balance sheets, key assets, contingent and actual liabilities to name but a few. Another point of contention with this subject is not having the financial clout to cover the value of the running costs. Ensure sufficient funds are ready and have back up plans in place.

Within the value of a business lies the image of the company. It is this image that the customers know and return for. The brand determines the value of the business. If you buy then change it, you may face the heartbreaking reality that customers have taken their money elsewhere. It is, after all, the customer that creates the revenue that feeds the profit.

Not Using an Experienced Broker

The worst thing a buyer can do in the hunt for a profitable business is going it alone. Unless you are a business maverick you will need the services of a business broker. A good broker will determine the landscape of the industry your buying into. They will cover all the above mistakes and present a thorough proposal detailing all the information needed to conduct the negotiations.

They will champion your needs and make sure you’re not taken for a ride. The fee, however that is conducted is worth its weight in gold if the broker is as good as he or she says they are. With a broker by your side, you can rest assured your dream of business ownership will be plain sailing. They will know the legal frameworks, regulations, contract verbiage and all the things that you may not know or may not have considered. The going rate in terms of timing is 3 months from engaging a broker to completion.

In Conclusion

If you looking to buy or sell a business then an experienced broker is a must. Passion and cash are the very least needed to complete a successful handover. Marc Phillips we can deal with any South East Queensland (QLD) business sale and all the important things that go with it. He has 15 years experience in all manner of company sales. CONTACT us today.

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