The Risks Of Buying A Business
Many people assume that buying an established business can only be a good thing.
A startup is hard work; you have no name, no reputation, frankly no reason for people to buy from you or use your services – unless you hit that one in a million next big thing idea, which to be fair most of us don’t.
So, if you see a business for sale that you can afford and on the surface offers you a chance to jump forward years in just a matter of days, surely you should be jumping on it right?
Well, not always.
There as risks involved with buying a business but that said if you know what they are you can protect yourself and avoid spending your hard earned cash on a hot potato that will fail you, and that no one else will want to touch.
Why are they selling?
Frankly, no one is going to advertise a business for sale and state that it is failing or that there is just too much competition in the area.
Retiring, relocating, or some other explanation will be offered.
Of course, in some cases this is true.
If you turned up to a busy, working dog kennel and found the owners to be in their 70s then retiring could well be the truth.
However, regardless of what you are told by the owners or the agents – remember they want a sale.
Do your own digging.
The internet now makes it possible to check on many details, from customer satisfaction to records at Companies House.
Check out the competition – whether you are looking at a local bricks and mortar or purely internet based e-commerce site, there will be competition, that’s life.
But, do they seem to be the active market leader or could you rival that?
Check the finances carefully
This is where you should get financial advice from a professional.
Figures can look good on paper, but clever accounting can hide the truth.
Ask for profit and loss statements, tax returns, bank statements, records and balance sheets and let your financial adviser comb through them.
Has the company been in debt, are they selling to recoup losses or are they in credit and looking healthy.
Spending some money on experienced advice could save you making a huge mistake.
Speak to staff
If you are taking on a business that comes with staff, speak to them.
You may be surprised by what you are told.
There is always the potential for sour grapes and one or two dissatisfied employees but if they are all telling a lousy tale, do you really want to get involved?
Check the assets
On paper the business might come with all the tools, stock, machinery etc, that is needed to run the business – but make sure you inspect this.
Inheriting a load of old or tatty machinery that needs massive overhauling or replacing could cost you a lot more than you bargained for.