Buying a business is a tedious and difficult process, requiring ample planning and research in order to proceed successfully. There are many different factors at play, each with its own level of importance and significance to the process. This includes taxes, legal matters, contracts, the transition to new management, and much more.
That said, it is crucial that you know what mistakes to avoid before you start looking for a business for sale. Here are some of the biggest business buying mistakes that you should steer clear of at all costs:
1. Not exercising due diligence
Don’t think that a business is successful just because it seems to be so. Before you acquire a business, you need to find out exactly what is owned, leased, owed, and borrowed. Not exercising due diligence may lead you to buy a business with lots of debt, having you end up saddled with their financial responsibilities without you even knowing beforehand.
2. Signing papers in your name
When you sign documents in your own name, you are taking on the responsibility and liability for whatever is in that document instead of signing on behalf of the business. Avoid this mistake by signing with your business name on all documents involved in the buying process. If you don’t have a business form yet, start an LLC or incorporate it with a business name so that you don’t take on liability for things under your own name.
3. Buying the wrong type of business
Just because a business has a good track record doesn’t mean it will stay successful under your care. In buying a business, you must choose the right one that fits your skills, knowledge, and personal interests. Not only does this ensure that you have the qualifications to run that particular type of business, but it also helps you buy a business that you actually want to run.
4. Not knowing the reason for selling
Whenever you buy anything pre-owned, you would want to know why it is for sale. When it comes to buying a business, knowing the reason/s for selling is crucial. Is the business about to go under? Is the area developing too fast for the business to catch up? Are the owners about to go bankrupt and want to get cash from selling the business?
Understanding why the business is for sale helps paint a clearer picture of the status of the business. Moreover, it can also put you in a better position to negotiate. For example, if the owner is on the brink of personal bankruptcy, you are better able to get the price you want since they would want to cash in as soon as possible.
5. Underestimating costs
This is a common mistake that many business buyers make. Aside from the cost of the business itself, there are a lot of expenses that you have to be prepared for when buying a business, including assumptions, taxes, utilities, and deposits, just to name a few.
If your budget won’t cut it, wait until you have enough funds to purchase without taking on significant debt. Overextending finances is another mistake that business buyers make, and one that you should avoid at all costs to keep your personal and business finances in good shape.
6. Doing everything yourself
Given that business buying is a very complicated process with a lot of finances and legal matters invovled, it makes sense to hire a tax professional or an accountant to sort the finances, as well as a lawyer to handle the legal documents. If you want things to be easier, you could also consider hiring a business broker.
7. Making too many changes too fast
You have a lot of ideas to increase the business’ productivity, efficiency, profit, and all those other good things. However, remember to take it slow and make changes gradually. Making too many changes or making them too quickly can make valuable employees throw in the towel and customers lose loyalty. Instead, take the time to observe the place.
Get a feel for the culture and figure out how workplace politics works. Get to know the people and see who you can trust. Once you have a good feel of the place, start implementing changes one by one, but do so gradually in a way that won’t throw everyone for a loop.
Buying a business can be a complicated endeavor. Nevertheless, it can be incredibly rewarding. Avoid these mistakes at all costs to ensure that there won’t be regrets in the end. Do your research, hire the right people, don’t rush into it, and most importantly, listen to your gut.