• Leonard Holler

6 common mistakes to avoid when buying a business

Updated: Dec 20, 2019

For many of us, owning a business is part of the American Dream right behind owning our own home. But, buying a business is a complicated and emotional process. Here are some common mistakes that others have committed when purchasing a business – Do not commit the same mistakes they did.

Do not pay too much for the business. This may be the result of many of other mistakes discussed later, but you should be careful to know the real value of the business before you sign on the dotted line. The results of paying too much may mean higher loan payments, lower profits, tighter cash flow and potential failure.

Do not pay for undeveloped potential. You should only pay for the current operating condition of the business. You, not the seller, should reap the benefits (profits) of the time, effort and money that it takes to develop the potential of an existing business. If the seller did not choose to invest their resources in developing the business, they should not be paid for it.

Do not rely on bad information. Make sure that the information you get from a business seller is verifiable. Have professionals check the financial information, documents, leases and contracts. Use a team of experts to guide you in legal, accounting and tax matters related to the purchase of the business. Analyze the competition, the industry and potential market for yourself. Carefully investigate the terms of the potential business purchase and get a business valuation done.

Do not decide to buy a business without evaluating your own abilities. Can you run this type of business? Can you perform the necessary duties that can not be hired? What are your strengths and weaknesses of managing the business? If you contract others to do things like payroll or bookkeeping, have you considered the cost of those services in your budgets? Running a business includes managing people, selling your goods or services, ordering products, doing paperwork and making numerous decisions on a daily basis. You need to understand what you are capable of doing.

Do not buy a business based on your emotions. If you get caught up in the emotions of fulfilling your dream of owning a business without taking time to investigate it’s potential and doing your homework, you may be making a costly mistake.

Do not change too much too fast. Once you own the business, do not be tempted to make large sweeping changes over a short period of time. You may risk losing customers and employees that do not agree with the changes you make. It might be better to take some time to understand the business and your existing customers’ needs prior to making any changes, unless something needs immediate attention. Consider soliciting suggestions from your customers and employees before changing anything.

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