The process of buying a business has many potential pitfalls every step of the way. As you decide which business is right for you we want you to keep them in mind to help you avoid being tripped up by them. Our goal is for you and your business to be successful. In order for that to happen here are some not so common mistakes. Maybe you may have already considered them, but just in case you haven’t, here are some causes of failure along the way:
- Impatience–Buying a business too fast. A thorough search and proper due diligence take time. If you rush, then you are opening yourself up to many further mistakes. Plan on the search process and the due diligence process to take some time. Depending on the size of the business it can take anywhere from 3 months for a simple business to even 9 months if a franchise is involved.
- Choosing a business that is wrong for your interests. Just because it is for sale and you can afford it doesn’t mean that it is right for you. Does the business fit your experience, ability, your interest, your family obligations and your passion?
- Buying a business that isn’t the right fit size-wise. Do you have the proper management skills for your size of prospective business. If you are not realistic, then you might bite of much more than you can chew.
- Can you handle the number of employees? Does the business already have someone doing the HR or are you planning to do that and if so, can your skills scale with the business?
- Can your checkbook tolerate the length of sales cycle? How much working capital do you have and is it realistic for your business?Sometimes the purchase of supplies and products does not occur on the same time frame of the income. Can you afford to float the expenses for the first couple of cycles? What kind of on-going credit is going to be required for you to operate the business and can you handle the debt load?
- Is the drive time to and from your new business realistic? Have you driven to and from the business to your home at peak times? Even if the business is marketed as “absentee owner-friendly”, not business is truly owner absentee, at least not ones that stay successful. Can you tolerate the drive time when you have to come in to manage things?
- Is the market area of your business realistic for you and for your business? Have you seriously considered the demographics and buying behaviors of your potential customers and whether or not the coming economy can tolerate business growth? In the case of buying a franchise, can the territory actually support the growth necessary for you to achieve the income levels you desire?
- If you are purchasing more than one operating unit, can you handle all that comes with that? Often in the franchise world, to make enough money for income expectations, the buyer buys three franchises, especially with food-related franchises. Can the business tolerate you not being at each location every day? Do you have adequate managers in place at each location? Sometimes when you buy more than one unit, one of the units requires significantly more effort than the others. Do you already have a handle on which ones and why?
The last one is not really a “one half” of a single mistake but it could definitely be part of your important consideration. If you have to negotiate a lease in the closing of your business you can make some serious miscalculations in that process. It it is not uncommon to get almost entirely through the business purchase due diligence process and realize the landlord is going to raise the rent when you take over the business or that you have left something out rent-related that could make the deal go south. One of the mistakes people make in their calculations is not including the Common Area and Maintenance, taxes and insurance in the calculations of a net lease when planning on total rent expenditure.
Since our goal is to help you get to the finish line of a successful closing, we hope these tips will help remind you of something to consider as you conduct your due diligence. We don’t want you to try to go through this process alone. Please allow us to help guide you through the sometimes tricky, but exciting process of buying a business. Call us today! (615) 649-6999