Buying an existing business can be a smart way to become a business owner without all the risk of starting a business from scratch. However, do not think there is no risk in acquiring a business. You could run into a string of potential problems. Some problems can be prevented, and some simply cannot be.
Their mentoring plans fell apart
According to the Associated Press, Matt Barber and Joel Doub purchased a fishing rod manufacturing company from the owner two years ago. The men had planned to keep the owner, Tom Morgan, on as a mentor to help them learn the business. Unfortunately, Morgan passed away unexpectedly six months after they had signed the deal.
Though Barber and Doub estimate Morgan’s loss set them back a year, they are moving ahead with help from Morgan’s wife, vendors, customers and even some of their competition. The men decided to just put their heads down and keep working.
Experts caution to expect surprises
Experts agree that while it is important to complete your due diligence, you should know when making a purchase there will be surprises and things you may be disappointed about. However, finding out as much as you can before you buy is important.
Consider getting an independent valuation
The owner could provide you with financials that appear good on paper. Consider having a business valuation independently with a business valuation firm. According to Entrepreneur, the valuation not only determines how much the company is worth, but also how much the owner’s expertise and connections contribute to that value. If all the customers leave after you take over, you will be left with a business that used to be successful.
Serial investor Brad Daniel bought a floral retailer that was formed by merging two separate businesses. Daniel purchased the company from bankruptcy, so it seemed like a great deal.
Daniel wished he spent more time in the stores
Though he was aware of the financial issues, he did not realize the two formerly separate retailers refused to work together. He had to deal with many angry workers while he worked to streamline the company. In retrospect, Daniel stated, he should have spent more time in the retail stores before he acquired the business.
Understanding a company’s financials is incredibly important before you buy a business. However, you should also spend some time at the locations before you move forward. Make sure you fully complete your due diligence which also includes having an attorney review the purchase agreement before you sign. You want to fair terms and all your responsibilities clearly outlined.