Top 5 Prevalent Blunders To Avoid While Buying A Business!!

Blunders To Avoid While Buying a Business

There are a number of people who wish to initiate their career as an entrepreneur and so they seek to buy the businesses that is related to their field or comes under the comfort zone. As a result, many of the entrepreneurs who love to buy a business usually gets excited over the prospects of the new opportunity which often tend to forget to apply some of the basic rules that might save them from the years of pain and suffering.

Top 5 Prevalent Blunders To Avoid While Buying A Business!!

So, let us have a quick look over some of the most common blunders that one must avoid while buying a business. Read further to know more about those blunders:

  • Not understanding why the seller is selling: There are a lot of reasons for the sellers to sell their business and you must understand them before buying them. Whether it’s a small business for sale or a large business out for sale, you have to investigate the real reasons for the sale. There are chances that the owner may be bluffing you in order to sell their business. For an instance, the owner may say that he want to retire but the real fact may be that he is losing his lease. Similar such reasons are there which you may come across and thus, you need to try little harder to find out the real reason for the business to be sold.
  • Buying the wrong business: This sometimes may not prove to be true, but it is advised not to buy the business which you are not interested in. If you go for the business that you don’t love will most probably result into ruining the business, ultimately ruining your life. Just make sure that you have a real passion for what you are opting for the next few years. Also, ensure that the business that you are choosing have the good use of your own personal skill set.
  • Not having good contract: Before you buy any business, there are a number of points on which you can negotiate for besides the price. You need to check the payment terms, inventory issues, financing, covenants about the property, debt, accounts receivable and many more. Other main factors may also include other financial encumbrances that may deal with intellectual property issues like the trademarks, non-compete clauses, patents and copyrights as well as a number of other details. Thus, you need to concentrate on various other possibilities before making a contract. Also, hiring a lawyer who is familiar with your business purchases could prove to be best as he would also review your agreement.
  • Not doing the due diligence: The due diligence for any of the business opportunities could go far beyond the financial statements. One has to understand the customers, the vendors, the market, the competitive space, the business reputation and positioning, the debt as well as host of other factors. A business may also appear as a great source on the surface, but there is a possibility that it is having serious problems underneath. As a result, it is better to examine each detailing before you make any final decision.
  • Not knowing real business valuation: It is quite easy to overpay for any of the business, especially when you don’t have a proper business valuation. Majority of the businesses have two major components that include- a base and a multiplier. In order to get the a base, you must have a clear understanding of the revenue picture from previous years. The same thing is included for the expenses as each industry has its own basic model for comparison.

Thus, these were some of the most common blunders that one must avoid before buying a business.