5 Tips for Buying a Business & How to Protect Yourself in the Process
Buying an existing business can be an exciting step of growth as an entrepreneur, but it can also come with potential risks. So, if you’re thinking about buying a business, here are 5 Tips for buying a business & how to protect yourself in the process.
1. Consider Potential Liabilities
First things first, it’s important to consider why the business is up for sale. While it could simply be a sale that makes sense for the original owner, it’s also important to look for any potential liabilities that might be contributing to the listing. Things like outstanding debts, poor business plans, continuous lack of profit, or ongoing lawsuits are just some examples of potential liabilities the business might have. It’s imperative that you do your due diligence when researching a company to protect yourself from signing up for these unwanted liabilities.
2. Research the Company Extensively
Beyond just discovering potential liabilities, doing extensive research on the business you’re interested in buying will help you make sure it’s the right investment for you. If you’re not sure where to start, here are some key things to look for:
The ins and outs of the business’s performance including things like financial records, historical performance, and marketing campaign data. (You can also add a contingency in your contract that will allow you to review these items before finalizing the sale).
Take a look at what the general public is saying about the business. Reference the business’ social media accounts and online reviews. If it doesn’t have a brand that is well-liked and established, this could impact your purchasing decision.
Reach out to other experts in the industry to get an idea of industry norms and standards so you can easily find any abnormalities that might be present.
3. Thoroughly Read the Paperwork
Before you sign anything, it’s important that you read through all the documents thoroughly. This is the part of the buying process where all the details really matter. Be on the lookout for potential deal breakers or red flags in the paperwork that might dissuade you from moving forward with buying the business. Some examples of things to look for include:
Do you want the current owner to be part of the transition phase once the business is purchased? If so, what does the contract say about this process, if anything?
Are there any assets excluded from the sale of the business?
How will the sale of the business impact current employees and your need to hire staff?
Can the current business owner open a competing business?
Are there any important contracts that need to remain in place after you take over the business? If so, how will that happen?
What happens if you find out after closing that the seller misrepresented the state of the business?
4. Hire Professionals to Help
Are you unfamiliar with legal jargon or do you feel overwhelmed by all the financial details of purchasing a business? Consider hiring professionals to help you work through these things. Lawyers, accountants, and brokers are all great experts to consider working with to help you make an empowered and informed decision.
5. Trust Your Gut
Trusting your gut is really important when making a big decision like this. If something feels off with the business you’re considering buying, it probably is. Be willing to take your time with the process, establish non-negotiables for yourself, and don’t be afraid to walk away if a business isn’t the right fit for you. The most successful business owners know that a better opportunity is right around the corner.
If you’ve been thinking about buying a business but are in need of some help with the legal side of things, we’d love to help you! Reach out to us today using the contact form and let’s get your business purchase started.