Buying an existing business is growing increasingly popular. After all, much of the work of setting up a company will already be done for you:
There will be an existing location. The brand may already be known. Plus, there might be some specially developed processes or trademarks already in place…
But there are several common mistakes you can make when buying a business.
Here are five of the biggest:
1) Ignoring your own skill set
When you’re buying a business of any kind, remember the skills you have and how they are going to apply to that particular type of company.
If you have zero knowledge of the industry and your experience is in a different field altogether, it might not be the perfect fit for you.
You might make a list of your:
Skills and knowledge
You can then compare them with the opportunities you’re considering.
If you’re buying a franchise, you should always be on the lookout for an opportunity which comes with training included.
2) Not doing the proper research
You wouldn’t buy a new product without doing a little research about it beforehand. So why would you do so with something a thousand times more important like buying a business?
1. Is there anything owed or borrowed? (If the seller is being honest with you, they should be happy to show you the books.)
2. Is there a clear reason why the business is being sold in the first place?
3. Are there any upcoming changes in the local or commercial environment?
Forgetting about the financial details
There are many parts to what constitutes a “business”. Have you considered the value of the:
Intellectual Property (IP) and trademarks
Money that’s owed
Some franchise opportunities, of course, will come with some kind of financial advice or planning assistance – usually through a third party. This means that buying a business with no money (or with some assistance) may occasionally be possible.
But it’s always worth taking the time to find that financial guidance – possibly from a lawyer.
You don’t want to end up buying a failing business. Or spending more than you can afford.
4) Not bothering with promotion and advertising
This is one of the most common mistakes you can make when buying a business.
Often, the assumption is that because the business is already up and running, proper promotion is in place.
Usually, this isn’t the case.
The exception would be that it is in the best interests of franchise owners to provide higher-level or national advertising for their entire network. Even then, it’s best to ask precisely what you’ll be getting in terms of marketing as a franchisee before you buy.
Whatever the case is, having a proper marketing strategy in place is a must for any business.
5) Signing documents in your own name
Normally when you are signing a business contract, you are signing on behalf of the company – not yourself.
If you end up signing in your own name, you’ll be taking on liabilities and other problems which you really don’t want. Instead, you will want to create a corporation or a proprietary liability company and use that name instead.
Again, this is a time when seeking some professional advice is a sound idea.
Because out of all the biggest mistakes you can make when buying a business, this one probably has the potential to cause you the most problems.