If you want to own and operate a business, it can be hugely beneficial to purchase an existing operation. Ideally, when you purchase an existing business you will be able to hit the ground running and avoid many of the challenges and growing pains inherent in starting a company from scratch.
However, not only has an existing business had time to become well-established and successful, it has also had time to develop potentially detrimental issues. When you are considering buying an existing business, keep an eye out for the following three “D’s” that should make you think twice before moving forward with the transaction:
Executing the purchase and sale of an existing business requires a significant amount of trust and honesty from all parties involved. If the current business owner is willfully dishonest with you about nearly anything, that should always be a MAJOR red flag for you as the potential buyer. The fact is, if he or she is willing to lie to you or deceive you about one thing, even if it doesn’t seem like a major factor, it likely means they are concealing other things as well.
Certainly, owners will likely try to maneuver and frame information in a positive light so as to achieve the best possible deal, but it is your job as the buyer to figure out when the owner is purposefully misleading you in order to disguise information that would otherwise prevent you from completing the purchase.
When there is deception committed on the part of the seller, there is simply too much at stake to give them the benefit of the doubt.
Perhaps the single most important signal that you may want to think twice regarding your desired purchase of an existing business is if you uncover discrepancies during the due diligence process. Make sure your investigation of the company’s finances is as thorough as it can be, and look for anything that simply does not match up or seems off.
As with dishonesty, one relatively minor discrepancy could potentially indicate that there are many more financial issues that have yet to be uncovered.
Put yourself in the current business owner’s shoes. Have their been any recent developments regarding clientele, location, laws, etc., that could be bad news for your business? For example, perhaps the government has passed a new bill that damages the company’s ability to conduct business as it once did. As a potential buyer, if you discover these types of negative developments, you may want to move on from the transaction.
Oftentimes owners seek to sell their company because they see tough times on the horizon for one reason or another. “Developments” is a broad category because there are so many possible events and occurrences that could have an impact, but do your best to conduct research on the various external factors that could affect the business, and if you notice any worrisome developments, it may not be worth your time and effort to purchase the company.
At Doida Law Group, we take immense pride in representing would-be business owners just like you—people with a strong entrepreneurial spirit and desire to succeed. If you are considering purchasing an existing business, contact us today and let us do everything in our power to protect your best interests.