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7 Most Common Slip-Ups Made When Buying a Business

7 Most Common Slip-Ups Made When Buying a Business

Having your own company can be a financially rewarding experience. The thrill of running your own business and being your own boss without having to answer to anyone is one of the many reasons why people opt to leave the workforce and start their own companies.

Running your own company can be a blessing, but it can also be a nightmare for you if you make mistakes. These mistakes can be avoided if you are aware of what they are when  you are looking for in a business.  With that in mind, here are the mistakes you should avoid when looking for a business for sale.

Not Performing Due Diligence

When it comes to businesses, not everything is how it looks. The owner can give you financial statements which show that the business is in excellent condition, but in reality it may not be. You need to conduct due diligence on the company and find out if the information provided by the owner is valid and if it shows the real status of the business.

You want to be in the know about the assets which the company has, the terms of their lease agreement, and if the company owes any other company or individual. You would not want to buy a business and later find out that it has debts. Performing due diligence on the business will assist you in not paying for the wrong type of business.

Purchasing Potential

One trick that owners use to entice buyers to buy their business is to point out the business profit margin potential. This is a mistake, as the profit margin can change anytime. The profit margin of a business will depend on the direct management and effort which you put in the business. You might also not be in a position to run and operate the business as the former owner did. And even if you decided to follow the strategies used by the previous owner, you won’t be able to control the fluctuations in the market. This is especially true if you are buying a business in a specific area. For example, if you are looking for businesses for sale in Los Angeles, make sure you are aware of the industry trends in the area and don’t rely on a sales pitch that was created to entice you to buy the business.

Ignoring Other Aspects in the Business

When purchasing a business, it’s crucial to examine the facts and data which you are given. Nevertheless, there are other areas of the company which you should not forget to look at. For instance, you should find out if the staff members get along, whether they are satisfied with their current positions, and if they have been contributing to the management decisions of the company.

Signing the Contracts Under Your Name

One of the biggest mistakes that most buyers make is signing business documents under their names. Avoid putting the lease, legal agreements, and contracts under your name. Signing your name on the will mean that you accept liability of the business. If you do this and the company folds, your assets won’t be protected. When buying the business, set up a corporation, which will protect all your assets.

Modifying the Business Too Fast

It’s good to buy a business which you know you can easily modify. However, companies are made up of people, and people are accustomed to doing things in a particular manner. If you try making a lot of changes at once, employees may get agitated. In fact, they might get stressed out and even try to resist the changes which you are trying to make. When you want to make changes, it’s good to involve the employees and hear their opinions before modifying anything.

Not Having Enough Resources to Sustain the Business

When the ownership of the company is changed, you will find that some clients will stop buying from the company. This is very normal. The downside is that it can disrupt the cash flow until you are able to build a customer base to replace the clients who left. It’s good to prepare and account for this by having enough resources to sustain the business for a period of time. Otherwise you will start facing debts in your new business and be forced to sell it at a fire sale price.

Failure to Promote the Company

Another mistake that buyers make is failing to promote the business because it’s already established. Even if the company is already established and it has its customers, you should come up with marketing plans and strategies to promote it.

If you want your business to be successful, then you have to avoid the above mistakes at all costs when purchasing a company. Otherwise, you may end up being forced to sell your business.

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by Rebecca Jones // Contributor to Businessing Magazine.

Opinions expressed by contributors are their own.