Purchasing a business is a great way to get your foot in the door of professional entrepreneurship. What’s best is that someone already did the hard work and built the business from the ground up. Buying a business can also be attractive to those who already own a company and are just looking to expand. Unfortunately, the process is far from simple, and you can end up regretting your purchase with no easy way out. For this reason, we will be examining the 5 most common mistakes to avoid when buying a business.
- Neglecting to do research
It is of the utmost importance to do a thorough sweep of the legal and financial background of the business you plan to buy. While you are at it, you should check your own liquidity and pre-qualify to ensure you can go ahead with the purchase.
One of the biggest mistakes to avoid when buying a business is not taking a detailed look at the seller’s finances. Buying into a loan or running into overdue taxes will only set you back and leave you with an endless money pit. Run a background check to see if any litigation is being run against the business. If you want to be extra safe, you should hire a financial auditor and a legal advisor before committing to the purchase. You only have once chance to vet the business… once it closes, it’s yours. Too many buyers regret their decision. Don’t be that buyer. It’s smart to open a new corporation to avoid the seller’s liability. This way you start with a fresh business, although you will still assume the business DBA. Another good idea is to find out why the owner put the business up for sale in the first place. It’s always important to do your due diligence when buying a business or commercial property.
Along with purchasing the business, you will probably inherit the in-company culture as well.
- Ignoring company culture
Realistically, you aren’t buying just a name and the rights to the profits. There are many other factors to consider, and what makes the matter complicated is that some of them can be hard to measure. For example, it’s challenging to put the already present business culture into exact terms and give it a rating.
Consider not only if the business is a good match for you, but also if you are a good fit for them as well. Spend a little time at their offices and talk to the people working there. Look at the leadership style and how the employees behave. Are they a tight-knit group with casual exchanges, or is the atmosphere professional and reserved?
- Not thinking about what happens next
Unfortunately, you can’t just buy a business and expect things to stay the same once you take over. Nor can you think that it will all just sort itself out. There’s always a climate change when a new buyer takes ownership… make it a positive experience for everyone. There will be staff departures due to the purchase, and you need to be ready for that. Have a backup plan in place and prepare to scout for new talent. Depending on the size of the company, this can prove to be a difficult task. If you think you’ll need help, you can form a merger team to help with the integration.
Have a merger team in place to help you organize everything after you buy a business.
After the purchase is complete, you could attempt to run the business remotely. However, you first need to consider your day-to-day responsibilities and talk to the management about your involvement with the business. While owning a company and not being present is something that you could pull off, it will be far from easy.
Moving there to make sure everything is running smoothly, at least in the initial stages of the takeover, would be a good idea. If the business you have bought is in Tampa and you currently live in another part of Florida, make sure to plan the move on time. Tampa is an excellent location for businesses across industries, but if you are planning to relocate here on a budget, you will have to prepare on time. Start at least a couple of months before you finalize the purchase of the business, and time your relocation a few days before signing the deal.
- Wanting to change everything from the ground up
If a business caught your attention and you plan to buy it, but you have a laundry list of things you would like to change, perhaps you would be better off starting a new business. An existing business will have an established way of doing things. Every work environment is its own ecosystem, and every community has its own culture. Changing a few things here and there is fine, but one of the mistakes to avoid when buying a business is changing too much too fast. If you shift too many things around, not only will it stop being the company you bought, but everyday operations could start running into problems. Be a secret shopper to the business you are considering to purchase. Without violating the NDA, go in as a customer and feel it out. See how the staff treats you, and check out the products or services. See what you would want to change when you take ownership.
Develop a relationship with the customers.
- Thinking the customers won’t notice
When making any decisions, you should be very careful not to alienate the customer base. A business takeover can be a great time to launch a promotion to ensure customer goodwill. Let customers know their favorite products will continue to exist and get them excited for new products or services you plan to launch.
If the business you have acquired only deals with a few larger clients, it might be a good idea to contact them personally. Try to establish rapport with them and assure them that your business will continue to nurture the relationship with its most valued customers. Inheriting a few high-paying customers is one of the best benefits that come with buying an established business. Regardless of what you plan for the company in the future, you would do well to hang on to the customers who provide you with a steady profit.
Now that we have gone over the mistakes to avoid when buying a business, you are ready to explore new financial investment options. If you do your due diligence and surround yourself with professionals, you’ll have all the bases covered and will be ready to proceed. Share your excitement with your new employees, and soon, your business will be flourishing.
Call Tom Brubaker at TAMBAY Business Brokers at 813.493.2913 for a free consultation