Buying a business is more complicated than one might think. While it has relatively lower risks than starting a business from the ground up, one simple mistake can cost your entire venture. As an entrepreneur, you’re often told to check the list of actions to do; however, it’s also important to avoid the things you shouldn’t do. From the initial industry assessment to the final offer, most buyers overlook certain crucial steps that might dictate the success of your business in the long run.
Here are some of the most common mistakes to avoid in buying a business:
Entering an Industry You’re Unfamiliar With
The first step you need to make sure of is to choose a business that is right for you. This includes choosing according to your skills, capacity, and years of experience. The biggest block that stops a business from thriving, let alone surviving, is the owner’s unfamiliarity. If you’re entering a venture you have zero experience with, you will need to take the time, energy, and money to learn it from scratch. While some can certainly be learned from business schools and crash courses, the most important nuances can only be learned from practical experience in the field.
If your niche is in the food sector, it wouldn’t be wise to buy and run a retail store. After all, you wouldn’t want to spend all your time studying when you can allot it to other crucial processes.
Lack of Understanding Why the Business is for Sale
There are two types of business purchases: a hand-off or a recovery mission. Knowing which one is on your plate greatly determines whether your business will benefit from its previous success, or you’ll spend your time pushing it up the hill. Understanding why the business is on sale is a critical step in due diligence. Firmly scrutinise its background including its legal and financial reports.
There are several possible scenarios that could result in one’s lack of understanding of the reason for the sale. For example, if the owner’s reason for sale is to start a different business nearby that would be in direct competition with yours, then you would want to get a non-compete agreement for protection. Another critical reason is the existing business is staggering low profits, hence the sale. For you to not carry this burden, make sure to conduct due diligence in studying the business’s cash flow and financial reports.
Doing it Yourself
Buying a business is not a one-person job. From the first step of this venture, outsourcing help is the wisest move. Finding a reputable broker to help you navigate the roadmap of buying a business is key. Not only will it cut off a chunk of your time from independently searching for a business on sale, but it will also help you determine which industry is for you. Hiring a broker allows you to have an instant comprehensive list of choices, which is something you won’t normally get if you do it alone.
If you don’t have the budget to pay extra in hiring a broker, it’s still possible to find the right business for you through network connections. However, hiring tax professionals, financial experts, and CPA lawyers to ascertain a business’ legal and financial reports is a step you shouldn’t miss. This is a crucial step as they will give you an accurate breakdown report on any possible loopholes in the tax and financial reports.
Implement Changes Quickly
One of the most important things to implement upon business purchase is a smooth transition. One of the most common misconceptions is going fast to earn fast. It’s important to take it slow and follow the MBWA (managing by walking around) rule.
Put yourself in the shoes of the employees. Any sudden changes might overwhelm key employees which will risk your business losing critical players which helped the business thrive in the first place. Understand their social situation and working culture. Any abrupt changes will disrupt their workflow, hence possibly affecting their productivity. Take it one step at a time.
Avoiding these mistakes will not only save you time and money but will also determine the direction of your business from the moment you purchase it. Keep in mind that outside help is key; listen to professionals who are more knowledgeable than you.
