Just like any big purchase involving four or more figures, buying an existing business should be done with a great deal of research, thought, and consideration. What are the things that people most often fail to do in this situation? Here are the top 5 mistakes:
Not giving diligence its due. You’ve probably heard of the term “due diligence.” In the legal world, particularly when it comes to asset acquisition, “due diligence” means you check out the business from top to bottom. Much like you take a used car to a mechanic for an inspection before buying it, you need to check out the health of the business before you buy it. Look at things like the balance sheets, customer lists, accounts receivable, accounts payable, and projections to start your preliminary due diligence.
Not asking enough (or the right) questions. This is the time to ask as many questions as you can think of to gauge what you are buying. Questions should include ones such as “what are the projections for growth of the business?” along with more pointed ones, such as “why are you selling?” Don’t be afraid to ask about potential problems, either. It’s vital to know what you are getting, good and bad.
Not trusting your gut. Even if you know nothing about a particular area of business, your instincts are still very valuable when making a decision on how to proceed. If your gut is telling you that something isn’t quite checking out, listen to it. Ask more questions, do more digging, hire a professional to do some investigating for you if necessary. Above all, do not ignore that feeling. Chances are there is something behind it. Maybe the seller is being cagey about giving information on an account that hasn’t paid in six months. Or, perhaps they are not being particularly forthcoming with information or getting back to you in a timely manner. These could be nothing, or they could be really big flags. Follow up on them.
Don’t get emotional. Speaking of your gut, however, your emotions should not rule the day here. If you’ve had your heart set on buying a dog grooming business complete with the mobile truck and one magically appears for sale at the right price, do not throw caution to the wind and just go for it. Buying a business is a huge investment of resources, time, and money and should not be dictated solely by the fact that you like the business logo and know how fantastic it will look emblazoned on all kinds of merchandise.
Not involving a lawyer from the start. Lawyers may not know much about the dog grooming business, but they know an awful lot about how to purchase businesses and stay protected at the same time. A good lawyer can give you lots of advice and guidance on things such as entering into letters of intent, terms of the contract, options to build in, and other things that will help keep you protected while you venture into the new world of dog grooming.
If you’re thinking about buying a business, it’s time to call Trembly Law Firm.
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