Whether you’re a first-time buyer or a prominent businessman, it’s easy for anyone to make mistakes when buying businesses. All it takes is a slight miscalculation or being too hasty to invest, and you may make a move that you will regret. That’s why it’s so important to familiarise yourself with some of the most common mistakes businessmen make when buying a new business so that you can avoid doing the same thing.
1. Not hiring a professional to do the due diligence.
Among the other important processes of selling or buying a business, due diligence is probably one of the most important. Due diligence is analysing all the legal, financial, and business-related information about the company you are buying. At this stage, the buyer can see if the business deal they’re looking at is authentic and a good investment for them. Not doing your due diligence correctly can open you up to a world of issues, including outstanding taxes for the business or litigation against the company.
Where we often see business investors going wrong is that they try to do the due diligence by themselves while managing the other work they’re doing. While some people may be capable of doing this well, it increases your chances of missing potential red flags in the fine print. Instead, hire a professional business broker to devote their full attention and resources to ensure your purchasing business is a good investment and everything is in order.
2. Buying for the wrong reasons
Businesses don’t sell like chocolates in a retail store. Many of them are often on the market for a while and might even take longer for you to build up, so you can sell them for a profit if you plan to flip a business. We often see people diving into a business purchase because of how good it looks on the exterior. Unfortunately, they don’t always consider the work that would need to go into the business behind the scenes to make it as profitable as they imagined when they bought it.
Buying a business needs to be thought through properly. If a good deal comes across your path, first consider whether it aligns with your existing business plan and goals. Also, consider whether you have the necessary resources and skills to build it up before buying. Once you’ve made the necessary considerations, make your decision on whether that business is for you or not.
3. Neglecting to learn the company’s culture
Every company has its own work culture and values. This culture describes how the employees work and manage the business’s day-to-day operations. A common mistake business owners make is neglecting to consider or learn about the company’s culture they’re merging with or acquiring.
This often leads to a few issues, such as conflict between staff members, a drop in employee satisfaction and retention, and difficulty managing employees. When you’re looking at buying or merging a business, consider its culture first and how you can integrate it with yours if needed.
4. Not planning for the future or transitioning well
Experienced business owners and investors know that buying a business is only the first step. Once you’ve purchased the company, the ownership transition is the next hurdle to get over. Greener business investors tend to neglect this aspect and don’t plan for it well.
While you may find a business that perfectly matches your culture and experience, the transition may still be difficult, so you need to plan well. You may consider putting together a post-merger team to facilitate the transition between you and the previous owner. This will ensure that you retain employees, clients, and the whole operational structure of the business.
5. Approaching a bank for financing too late
Finally, we’ve seen business sales fall through the cracks because investors waited too long to get the banks involved. Some people wait for all the nitty-gritty details of a business sale to go through before they approach a bank to finance the purchase of a business, only to find that they are denied. Waiting too long to apply for financing risks your entire business deal. Instead, find a company you’d like to purchase and approach the lender who’ll finance your purchase before you negotiate. This will also ensure that you know how much you can spend.
Tips for buying a business the right way
There are some fundamental tips to ensure you buy the right business and do things the right way at the same time, for instance:
- Make sure you find businesses for sale on a reputable marketplace like Benchmark Business Sales, for example
- Get a broker involved early on to help ensure the process runs smoothly
- Set an appropriate budget, and don’t over-promise and under-deliver
- Make sure that you have the skills and experience to run the business you’re buying
- Don’t rush the sales process. This is when mistakes happen
- Consider whether the current economic conditions make purchasing a business a wise decision or not
Final Thoughts
As a business owner looking to expand or break into a new market by changing industries, the best advice we can give you is to do your due diligence thoroughly, which includes covering all your bases, including planning budgeting, financing, staff management, and any other factor related to the business you wish to purchase. By doing this, you should hopefully avoid most of the common pitfalls others have made above.