Without a doubt, buying a business can be a very difficult and process complex. Not only do you have to address business issues when buying a corporation, but you also need to deal with legal and employee issues. Fortunately, as long as you’re careful and do your homework, buying a business can be very rewarding. Avoid committing these top three most commonly made mistakes when buying a business.
Signing your name
Before you even purchase a business, it is important that you have a good understanding of the legal implications of every action you take. A huge mistake that new entrepreneurs often make is signing their own name on contracts and documents when buying a company. You should avoid doing this at all costs, as signing your name signifies that you will assume all personal liability for the business. Essentially, if the company goes bankrupt or becomes involved in litigation, your personal assets will be at risk. Instead of signing your name, it is better to set up a limited liability company or corporation to buy the company.
Failing to do due diligence
In order to entice potential buyers to buy a company, many sellers attempt to highlight the potential profit margin of the company. However, you should take any claims about potential profit margin with a grain of salt, as profit margin varies vastly. Factors that influence profit margin include the direct management and market fluctuations. Essentially, unless you plan on running the business the exact same way the previous owner did, profit margins will be different. In fact, even if you do manage the company the same way, market fluctuations will still influence profit margins.
A better question to ask is exactly why the company is being sold. Many sellers claim that they are simply retiring. However, it is possible that the true reason is that a competitor has purchased property nearby. Investigate to try and determine the real reason for the sale of the company, so that you won’t have to deal with any unexpected surprises.
Making changes too quickly
Some people purchase companies to modify them and sell them for profit. While this is sometimes an effective strategy, you need to keep in mind that companies employ real people. The average person prefers stability rather than change. If you purchase a company, you should avoid making changes too quickly. That way, you won’t have to deal with the significant expenses of turnover and having to train new staff.
Before you buy a business, it is important that you think carefully and conduct as much research as possible to avoid common mistakes. To ensure that your best interests are protected during the purchase process and beyond, it is important to consult with an experienced business law attorney at Dunn Lambert, LLC.