900 N. Kings Highway, Cherry Hill, New Jersey 08034
856.667.4100 ·
215.563.0276 ·
Fax: 856.667.3652
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Business Tip |
How to fail at buying a business
The number one mistake made by those buying a small
business is buying too quickly.
Too many small businesses change hands with too few questions asked. You should have satisfactory answers to at
least these questions before proceeding with your investigation to purchase a business:
Why is the seller selling? Are the hours too long for the amount of profit received?
Is the asking price realistic in relation to the net profit and the assets being transferred?
What is the true net profit? Are the owner's wages included in the expenses? What income and expense items, if
any, need adjusting to provide a true picture of net profit?
Are adequate records available to determine net profit for the past three years? Are federal tax returns available
for review? A seller who might inflate the profit figures for the buyer's eyes is not likely to do the same on
the federal income tax return.
Will you get an adequate financial return on both your invested money and your time to manage the business?
How much cash is needed now, and how much will be needed for peak season inventory purchases, etc.? How much cash
is needed to make the changes you have in mind for the business?
Is the current equipment adequate, and has it been properly maintained?
Is the building lease transferable?
Will the customers remain loyal to the business when the current owner leaves?
Will the current owner help during a transition period?
How much do you know about the type of business you are about to buy?
Will the seller let you work in the business for a few weeks before you actually sign a buy/sell agreement?
Many potential buyers fall in love with the business before they know all they need to know for an intelligent
purchase decision. Once you have "stars in your eyes," it is difficult to be objective about the areas
that need to be reviewed.
Before you sign any agreement or put any money on the line, seek professional assistance. Your accountant, your
banker, your insurance agent, and your attorney should all be consulted before you commit to purchasing a business.
These professionals are not biased. They have seen many buy/sell agreements on small businesses and are well-equipped
to spot problem areas for you.
Please contact us before you buy. We often see people several months after they have been operating their newly
acquired business. They are wondering why things aren't going as they had hoped. We will gladly assist you while
you are still in the investigative stage of your business shopping.
If you find our business tips useful,
please tell a friend about our home page. We are a growing firm and would appreciate your referrals.
