3 Things You Should Know Before Buying a Business

by Josh Biggs in Business on 21st December 2020

As the Baby Boomers start to retire, many entrepreneurs who spent decades building up successful small businesses are looking for buyers who can continue their legacy by transforming the companies they founded into firms that can thrive in the 21st century economy. 

This represents a major opportunity for younger people who want to go into business for themselves, but aren’t sure they’re ready to start their own company from scratch. And while there are many good reasons to consider buying a business in the coming year, here are three things you should know before you dive in. 

1. Don’t Go it Alone 

Buying a business is a significant undertaking, and it’s not one you should try to manage on your own. Just as a real estate broker can help you navigate the process of purchasing property, a mergers and acquisitions broker can help you avoid the common mistakes people make when buying a business for the first time. 

M&A brokers will take you through the entire process, from contacting the business you’re interested in to closing the sale. Not only can an M&A brokerage help you successfully acquire a new business in an industry you’re passionate about, they also have expertise that can help expedite the process so that you don’t spend months wading through paperwork. 

2. Get the Full Financial Picture

When you buy a business, you aren’t just buying the assets — you’re also taking on the liabilities. Before you sign on the dotted line, you need to make sure you understand the full financial picture. This doesn’t mean you should never buy a business that has debt, but it does mean you should have a plan for what to do about it. 

You should never assume, for example, that income will cover the liabilities. What happens if sales go down? How do you plan on servicing that debt if you have a bad quarter? Do you have enough capital reserves to weather the transition?

Getting the full financial picture and doing your due diligence will help ensure there are no nasty surprises. Fortunately, this is a service most reputable M&A brokers will offer. 

3. Don’t Pay for Potential 

A person selling their business is always going to try to paint it in the most attractive light. And often that means making a case not for what the business is, but for what it could be.

But it’s important to remember that it often takes a lot of hard work to realize that potential — hard work that you will have to do if the sale goes through. Negotiating the deal based on the current assets and liabilities means that you’ll have the capital to invest in turning the business into the powerhouse you know it can become. 

There are a lot of things you need to keep in mind when purchasing a business, and if you want to avoid the common pitfalls that often bedevil first-time buyers, make sure you get professional help from a mergers and acquisitions broker. 

Categories: Business