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How To Protect Yourself When Buying An Established Business
Posted On November 13, 2020
Buying a small business is something that must be done with care, because if it is not, as commercial lawyers will tell you, the legal and financial ramifications can be dire. Many a lifetime’s worth of savings has been lost by someone trying to short cut all the due diligence and other checks, only to find themselves left with massive liabilities, and a business that is not what it seemed.
Of course, there are many positives to buying a business, rather than starting one from scratch. These obviously include the fact that the infrastructure is there to allow you to trade immediately, and there is already a level of cash flow. You are also able to take advantage of the fact that the business has an existing client base.
However, all of these can only occur if the process you go through ensures that you have covered yourself against any issues or losses. Do not let the excitement of owning the business cloud your judgement or lower your guard with regards to being caught out.
Obviously, employing a commercial lawyer to help oversee the purchase of the business and to ensure that all the legal elements are correct, including the purchase contract, is certainly going to make a huge difference. Beyond that, there are also several other steps you can take to protect yourself, and one of them is to look out for the following red flags.
Lack Of Disclosure By The Seller
If the seller of the business is reluctant to disclose certain aspects of it to you, the question you should be asking is ‘What have they got to hide?’. Not wanting to disclose information about employee relations, leases they have for premises, and what licences they have, for example, should make you extremely cautious.
These are all key elements of how a business operates, and if there are issues with one, some, or all of them, then they need to be disclosed, and where possible, resolved, before you consider buying that business.
Seller Pushing For A Quick Sale
This can often be for perfectly legitimate reasons, however, it does not mean that you do no look deeper into why they are trying to close the deal so soon. Actions like trying to close the sale without you first being introduced to important people such as the landlord or the business’s suppliers should start alarm bells ringing.
Also, if they try to create the impression that the deal which they are giving you is too good to be true and say that you should accept it without delay, is also a time to slam on the brakes.
Look For Recent Changes In The Business
If you identify a number of changes that have taken place within the business recently, then you will want to establish why they were made. Examples are lots of managerial changes, changes in the number of staff, new suppliers recently being used, or changes in the businesses’ accounting procedures.
Each of these may have been made for a good reason, but unless you have a proper explanation which makes good business sense, then it is a sign that something is not right. Yes, businesses make changes all the time, but unexplained ones might be a sign that they were made to make the business appear to be something it is not, and that is likely to mean there are problems for you coming down the line, if you buy that business.