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Business Tip of the Month

Business Tip
of the Month
For the month of June 2002

Avoid the #1 mistake when buying a business

There are many mistakes one can make in buying a business. But if there's any one which could be given top billing, it would be buying too quickly.

Many potential buyers fall in love with a business before they know all they need to know for an intelligent purchase decision. Once you have "stars in your eyes," it's very hard to be objective about the areas that need reviewing.

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 yourself to purchasing a business. The people who work in these four areas of business see numerous business transactions and assist many buyers and sellers. They are well-equipped to identify problem areas for you.

About 70% of all new businesses fail before they are two years old; about 80% fail before they are five years old. Established businesses also fail. Investigate before you buy. Are you buying a dying business? Why does the present owner want to sell?

How was the asking price determined? Many sellers feel that their business (their brainchild) is worth more than the net profit will substantiate. When you buy a business, you are buying the right to "future income." The price you pay should be determined at least in part by the future income stream.

Even if you're well acquainted with the type of business you're about to buy, you can still benefit from outside assistance. An individual who owned a restaurant on a busy boulevard in a large city will find that a restaurant in a seasonal tourist area has a completely different set of challenges.

The need for professional assistance when buying or selling a business cannot be overemphasized. Please contact us before you buy. We are here to help.

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