Identifying a new company to purchase can be an exciting proposition, particularly, when you are advised by an experienced business attorney. However, if you do not take the necessary steps to protect yourself by engaging with an attorney and doing all of your research beforehand, you could find yourself suffering from a bad business purchase decision.
Thankfully, there are several different signs that you can watch out for that can identify that it is not the right decision to purchase a business. You want to ensure that you have a proper understanding of all of the issues involved in a business purchase. There are several different warning signs that you should be aware of while engaging in this process, including all of the following. Make sure you have a lawyer carefully review all the materials submitted to you so you can make an informed business purchase decision.
Discretionary Income
Identify how much money the owner of the company is actually taking home at the end of the year. If they are unable to cut themselves a quality paycheck, the business may not be in the best shape financially.
Defects
It is important to invest in a company that is housed inside a building with effective equipment. If it looks like it will cost thousands of dollars for you to be able to upgrade the equipment or the building in which the company is housed, this could be a red flag that it is not appropriate to purchase the business.
Owed Taxes
A business that has fallen behind in making its tax payments will have some debts to the IRS. If you purchase that business, you may be doing so by taking on the debt yourself rather than leaving it with the previous owner. If you identify a tax debt in the business while conducting your due diligence with an experienced business planning attorney, you should consider deciding not to purchase the company or requesting the purchased amount be decreased by the taxes owed.
Bad Reputation
The company should have a generally good reputation in the community. It can be very difficult to turn a problematic image if the previous owner has made a bad name for the company. Even if you attempt to make change within the company you may inherit this bad reputation without some careful consideration of the transfer of goodwill and your ability to rebuild the company’s image.
Ready to talk about a business purchase? Contact an experienced business lawyer to learn more.
