May 17 2008
Think Clearly When Purchasing a Business
For many, the American dream of owning a business is waiting just behind owning a home. I was a teenager when I owned my first business. Since then, I have bought or started many businesses and helped others to do likewise. Here are some mistakes which I have seen or committed myself.
Buying a business because you love to do what business does
One reason restaurants have a high failure rate is people buy their departure or because they like to cook. Very few restaurant owners spend time cooking. Their time is spent on personnel management, order supplies, doing paperwork and management of crises per day. A small business owner must wear many hats - including that of manager.
Paying too
As a result of the combination of all other errors. Many new business owners set themselves up for failure to pay too much, resulting in higher loan payments, lower operating funds and reduced borrowing capacity.
Payment of potential
You do pay for the company in force at the time of purchase, not what it could happen in the future. You’ll have to spend time, effort and money to develop its potential. The seller has chosen not to invest these things, it does not deserve to be paid for them.
Leave your emotions rule
If you’ve always dreamed of owning a business, it is very easy to get caught in the strong emotion to see invoked by those dreams come true. To counter your emotions, take your time, do your homework and get help from the goal of adviser.
Not evaluate you
Do you have what it takes to run this business? Try to match your strengths to the important mission you will be asked to fill out. Running a small business requires the owner to do many things. No one may be good at all, to make arrangements in areas that you are the weakest. Some tasks such as payroll and accounting can be easily use of suppliers. Maybe your spouse, another family member or a partner can do things that you can not or do not want to do.
Based on misinformation
You should check all important information about the company. Your CPA can check the financial information as receivables, debts, and inventory. Your lawyer can review loan documents, leases and contracts. Your business valuation professional can analyze the competition, industry and economic conditions. Use independent evaluators to assess property and equipment. Get a credit report with the company through your banker or CPA. You can make a part of the investigation you save money, but not to cut too many corners - May it cost you in the long term.
Do not build a team of experts
At a bare minimum, you should get help from a lawyer and a CPA. The lawyer can prepare and review documents, help structure the transaction and to your knowledge, legal and liability issues. The CPA can provide a financial analysis of the company and advise you on taxation and accounting. You should consider adding a business valuation professional. His evaluation report can be used to determine the reasonableness of the asking price, negotiate a lower price, and provide valuable information about the company, industry, competition and economic conditions.
Change too much, too fast
Once you own the business, you’ll be tempted to start making wholesale changes from day one. You risk alienating long-time employees and customers. Unless the company is in poor financial situation and needs immediate action, taking more time to get acquainted with the company, your employees and customers before making changes. It is an ideal time to solicit suggestions from employees and customers.
Do not be interested in the company product or service
I made the mistake of thinking that because I am a CPA and smart that I could own and operate any business. I bought a company that sold high-performance auto parts to young men who have jacked-up, four-wheel drive pick-up and went to drag racing every weekend. I did not and was never understood why they would. I could not relate to my customers and went out of business in about a year.
Buying a business is complex, emotional. Avoiding these costly mistakes, you can prevent your dream into a nightmare.
Related PRO!
No responses yet
