Buying a business can be a more affordable and less risky path to entrepreneurship than starting a business from scratch. When you buy a business, it probably already has inventory, equipment, trained employees and customers. You are also able to base your purchase off records of past profits and losses instead of projections.
There are many benefits to buying a business. However, there are also some common pitfalls you should try to avoid as you begin this process.
Allow yourself plenty of time
One common mistake people make when buying a business is getting impatient. Finding the right business can be a time-consuming process. If you are still focused on another job or you expect to find a business right away, you might be biased when evaluating businesses for sale or you may overlook warning signs in your haste to complete a purchase. Instead, allow yourself adequate time to find and evaluate opportunities.
Understand the seller’s motivations
Not understanding the seller’s motivations is another common mistake. Sellers are often emotionally attached to their business. It is important to consider why the seller wants to sell and what his or her concerns are. If the seller does not address these topics, consider asking him or her about it. You may also consider asking what the seller thinks is most challenging about the business. When you ask questions, make sure the seller’s answers to these questions fit logically with other facts, like when the business was put up for sale, what kind of reputation the business has and what the financial records show.
Avoid overestimating the value of a business
Another common mistake budding entrepreneurs often make is overestimating the value of a business. Be conservative when estimating future cash flows, and avoid underestimating expenses like equipment and maintenance. Also, do not forget to include your own salary when calculating business expenses.
Buying a business is an exciting venture to take on. However, to be as successful as possible, consider how you can avoid common mistakes others have made when buying businesses. Be sure to take your time shopping around, discover why the seller is selling and be realistic when estimating the value of a business.