Buying a business can be an exciting yet stressful time. From initial research to negotiating pricing to sealing the deal and making the company your own, there are a lot of things to consider.
As a result of this stress and excitement, however, it’s easy to make a few common mistakes when buying a business, such as not asking the right questions or buying purely out of emotion. Here, The Dealmaker’s Academy will explore some of these mistakes as well as how to avoid making them yourself!
Poor due diligence
At first (and even second or third) glance, a business can appear successful and thriving. However, carrying out insufficient due diligence (or worse, none at all!) can be catastrophic when buying a business. This whole process is crucial when buying a business.
This is when solicitors, accountants, and advisors all have the opportunity to check, in detail, that the seller has been honest based on the investigations carried out surrounding the health of the company. Therefore, this must be done correctly and thoroughly to avoid any crucial information being missed.
Buying with emotion
Although it can be beneficial to trust your gut and use some emotion when buying a business, it’s important to ensure that logic and rationale are present when making critical business decisions. Otherwise, you could be setting yourself – and your business – up for failure further down the line.
If you choose to buy a business based on pure emotion, you could end up with a company that you don’t have the right skill set to manage and run. This could mean you might be in over your head in regard to other issues such as staffing, finance, and other essential business decisions.
Not asking the right questions
When buying a business, asking the right (and enough) questions is vital. Although this, of course, includes questions you should be asking the current business owner such as their reason for selling, any company assets, and more.
It also includes asking yourself the right questions, such as considering why you want to buy the business, whether you financially can afford it, and whether or not you’re ready to take on such a large commitment. Asking yourself and the current business owner key questions in the beginning, can save you much expense and heartache later on in the process!
Not understanding the seller’s motivations
As discussed previously, understanding the seller’s reasons and motivations for selling their business are essential. Perhaps they’ve fallen out of love with the industry, maybe they’re looking to retire, or perhaps the business is failing.
While buying a failing business doesn’t always have to be a bad thing, through understanding the seller’s motivations, you will at least be able to make an informed choice regarding whether or not the business is right for you and something you’re willing to take on.
Making too many big changes too quickly
Making changes can be a positive thing when buying a business. After all, you’re likely to want to put your stamp on it and start improving (or optimising) current processes. However, making too many big changes too quickly can potentially hinder your new business’ success.
Unfortunately, by doing this, you may not be leaving enough time to see the results of each change individually, so you could be risking making misinformed decisions regarding future processes. Not to mention, you’ll be running the risk of disgruntling existing staff members!
Ultimately, buying a business certainly isn’t a decision to be taken lightly. There are many questions and elements to consider, as well as some key mistakes that can easily be avoided. It’s vital to avoid rushing into such a decision, as this can have dire consequences to the point of risking your new business failing.
Through carefully planning everything from the beginning and preparing any questions before buying a business, you’re much more likely to avoid the mistakes we’ve discussed in this guide, leading to a much more stable and successful business in the long term.