There are many mistakes one can make in buying a business. But
if there’s any one which could be given top billing, it would be
buying too quickly.
There are many mistakes one can make in buying a business. But if there’s any one which could be given top billing, it would be buying too quickly.
Many potential buyers fall in love with the business before they know all they need to know in order to make an intelligent purchase decision. Once you have “stars in your eyes,” it’s very hard to be objective about the areas that need reviewing.
Before you sign any agreement or put any money on the line, seek professional assistance. Your accountant, your banker, your insurance agent and your attorney should all be consulted before you commit yourself to purchasing a business. The people who work in these four areas of business see numerous business transactions and assist many buyers and seller. They are well-equipped to identify problem areas for you.
About 70 percent of all new businesses fail before they are two years old, and about 90 percent fail before they are five years old. Established businesses also fail.
Investigate before you buy. Are you buying a dying business? Why does the present owner want to sell? How was the asking price determined? Many sellers feel that their business (their brainchild) is worth more than the net profit will justify. When you buy a business, you are buying the right to future income. The price you pay should be determined at least in part by the future income stream.
Even if you’re well acquainted with the type of business you’re about to buy, you can still benefit from outside assistance. An individual who owned a restaurant on a busy boulevard in a large city will find that a restaurant in a seasonal tourist area has a completely different set of problems.
Since the professionals mentioned about are not biased as to whether or not you buy, their assistance should be invaluable.
Barbara Andres is a CPA and a partner with the accounting and business consulting firm of Bianchi, Lorincz & Company located in downtown Hollister.
