Laying the Groundwork Before Buying a Business

It goes without saying that buying a business can be one of the biggest moves that you ever make. You do need then, to perform due diligence and to make sure that everything is as good and as dependable as you believe.

Your lawyer and your accountant will usually work alongside of you in trying to uncover anything unpleasant about the deal you are tempted by – details such as pending lawsuits that the seller may try to hide, can be common. You don't get the chance to perform due diligence at any other stage. Once you get past this, you will actually have sunk money into the venture. This is your chance. Let's take a look at the main areas that you need to pay attention to. These are areas that people often neglect.

When you're buying a business, the seller's financials will usually give you your best clues to anything that may be amiss. When a seller plans to prepare his business to sell, he will often try to make it look more profitable than it is, shortly before settling. To do this, he'll try to cut back on those business expenses are shift expenses around just to make things look like they're more profitable than they are. If profitability seems to have dramatically risen shortly before the sale, that's a red flag right there.

Businesses usually have leases on the properties they occupy. These can be very valuable. Buyers will often overlook how valuable these leases are. Sometimes though, buyers will spend too much time studying the leases to make sure that they are good value, that they'll just let the deal fall through. You can also have problems with leases when the landlord is not happy with your credit rating. Sometimes, he will just refuse to accept a new tenant at all.

It's always a good idea to check the leases out quickly before buying a business.

A business is only as good as its loyal customer base. While you might find everything acceptable to do with the leases and financials, the value of a business often depends quite entirely on how much its customer base can be depended upon. It can be a good idea to investigate the customer base. You could look at the accounts receivables to see if credit extended seems to get paid back on a regular basis.

Finally, it could be a good idea to take a close look at the kind of employee stability the business can count on. To someone buying a business that's been running for some time, it can be very important that they be able to depend on the employees to help them catch up. If the old employees seem attached to the old business owner and plan to leave the company with him, it can spell trouble. You need to secure some kind of guarantee that the old employees will stay on.