Buying a business is a great way to expand your existing portfolio without having to put in all the legwork that comes with starting a brand new business from scratch.
But too many businesses jump straight in without looking at the finer details. So let’s have a look at 6 classic business buying mistakes most common in today’s markets.
1. Not Understanding How the Business Operates
You must understand many legal forms of business entities, including sole proprietorships, partnerships, corporations, and LLCs. Not only does it shape the whole sale process, but it can say if any extra work needs doing; in particular, changing the legal status of the business to allow for a smooth acquisition.
2. Not Having Long-Term Business Goals
The first thing you need to know is whether your objectives are for the long-term or short-term.
How do you see the company operating in 3-5 years? Do you want to improve your business operations, grow in size, buy a company, and leave current operations alone?
3. Misunderstanding the Purchase Deal Structure
Buying a business from an individual is not the same as buying a company from a corporation because you’ll deal with an individual who already owns the business.
The person you buy it from might want to sell you the business or, more likely, will offer it to you at a negotiated price. This is particularly the case for online purchasing processes, such as when you buy a SaaS company. SaaS companies can be a great investment and are typically traded as a trading asset, rather than the entire business itself.
4. Failing to Spot Gaps in Your Existing Business Model
You also need to know how to check the business you want to buy. Not everyone can see the same kinds of value in certain aspects of a business, which causes problems if gaps are unknown. For example, a new or growing company might see value in marketing channels that an established company may consider old-fashioned.
5. Not Understanding the Business Financials
Having a clue about the business finances is a good idea. If you don’t know what financial statements are or don’t know how to read them, you’re going to need some help. You don’t have to understand the ins and outs of financial planning, but you do need numbers at your fingertips to make informed decisions.
Suppose an entrepreneur is generating revenue. That doesn’t mean that they can run a profitable business. It’s not uncommon for new businesses to lose money for several years as they grow, before turning around and making profits.
6. Misjudging What Makes a Fair Buying Price
Knowing what makes a good or bad price is essential when you’re negotiating with someone. It’s a good idea to have a professional help you understand what the company is worth and whether you can offer a fair price. One way to do this is to seek advice from a broker on how to proceed.
A business broker is an expert in buying and selling businesses. They’ll do everything possible to help you make the right decision when it comes time for negotiation.
Business Buying Mistakes Cost Money
The benefits of buying businesses are undeniable. That said, making simple business buying mistakes can be costly, especially if you don’t realize that you made them.
Suppose you’re unable to commit time to research all these areas before buying a business. Then you should work with a professional to help ensure that it’s the right move for your company.
Make sure you check out the rest of our blog for more top tips on acquiring your next business!