Buying A Business Top 3 Mistakes
I consistently see mistakes being made by people looking to buy a business.
These mistakes are often from the individual simply not knowing exactly what they need to do.
Mistakes might also be due to being misinformed by inexperienced people or people with ulterior motives. The following are my TOP 3 mistakes many buyers consistently make when it comes to buying a business.
Buying a business is a complex process.
Anything overlooked, or any mistake inadvertently made has the potential to destroy the business you bought, has the potential to sap you of all your life savings, has the potential to destroy relationships that are important to you.
To be clear, there are literally dozens of mistakes that can be made throughout the business buying process. In this video I’m going to discuss just 3 common mistakes I consistently see buyers make, when it comes to buying a business in Canada.
1. Listening to inexperienced people.
The fact of the matter is VERY few people have “hands-on” experience buying and selling businesses. Yet there are many in-experienced people out there who feel they can comment on such matters. Many of these in-experienced people are simply “dream-kills”. They take inaccurate information and talk about it as if they know all about the subject of buying a business. I’ve seen “friends” do this, lawyers do this, accountants do this and real estate agents do this.
Listening to inexperienced people has terrible consequences.
Instead listen to an experienced business broker. The fact is it is the Business Broker who has the “hands-on” experience to help guide you and provide with expert advice specific to buying a business.
2. Hiring a Lawyer BEFORE you even know if you have a deal in place.
One common way for a buyer to burn through thousands of dollars of hard earned money un-necessarily is to hire a lawyer before they even know if they have a deal in place with the business owner.
When you find a business of interest to you, don’t be running off hiring a lawyer to help you negotiate a deal – that is not the lawyers role – the negotiation should happen between you the buyer and the business owner directly.
Listen, when you find a business opportunity of interest to you, take time to talk to the business owner, in person, about the sale of the business. With guidance from my buying a business course or from an experienced business broker in your area, create a framework of a Sale Purchase Agreement that you and the seller can both agree on before you hire a lawyer.
3. Not Doing Enough Due Diligence.
Due Diligence is a Condition Precedent that should be reflected in EVERY business Sale Purchase Agreement.
Due Diligence is the process by which all the documentation collected and information about the business is verified. It is the activity of physically verifying all the claims made by the business owner and business representative.
Due Diligence must follow a specific path and Due Diligence takes time.
Unfortunately, what I often find is most buyers are so overwhelmed by the overall process and sheer volume of information that they skimp on this activity. They “hope” the business owner / seller is telling them truth. They “hope” everything will just fall into place. A buyer might even avoid doing any Due Diligence because they are blinded by their emotions and thoughts of piles of money pouring into their bank account.
And this is where clear “Red Flags” are missed. Red Flags that end up having fatal consequences to the buyer.
Due Diligence is so important, I’ve dedicated a whole section to the subject in my buying a business course, that includes the most comprehensive Due Diligence checklist you will find, which can be applied to any business opportunity in Canada.
Let’s review and summarize the discussion.
- Business Brokers are the experts when it comes to buying a small business – (which by definition are firms that have fewer than 100 employees).
- Be sure you have the framework of a deal in place with the business owner BEFORE you hire a lawyer.
- For every business you are seriously interested in, be sure to complete a thorough Due Diligence on the business, business owner and business opportunity.
Comments from in-experienced people about the business buying process, buyers racking up un-necessary legal fees and not doing a proper Due Diligence on a business are also 3 reasons why I created my Buying a Business course. My course “The 8 Elements Approach To Buying A Business” will take you step by step through the business buying process, it is includes all the forms you need and is guaranteed to save you money.
Thank you for taking the time to read my article on Buying A Business – Top 3 Mistakes!
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