Avoid These Common Mistakes When Finding a Business for Sale

Buying an established business will save you time and issues associated with building a new business from scratch. Moreover, you also buy the customer goodwill, online marketing resources and inventory linked to that particular business. Whichever approach you choose in finding the perfect business for sale suitable for your budget and niche, avoid these mistakes, especially during the purchase process.

Failure to build rapport with the seller

Although the purchase process involves negotiating with the seller until you find the most reasonable price that will guarantee you the best deal, it is crucial to partner with the seller. The seller has a lot of information that will determine the future of the business that you are buying. In addition, you will need the seller’s advice and training during the transition period on how to run the new business successfully.

The best way to get the seller’s full cooperation during the entire process is by building a solid rapport from the beginning. If the seller is using a broker to sell the business, it is also important to build rapport with all parties involved in the transaction. In fact, most sellers will depend on their brokers for advice and input regarding any offers on the table because brokers are experts in the field and have enough experience to put a price on any online business based on several variables.

Failure to forecast properly

Ensure that you do your discovery and verification due diligence accordingly. Discovery due diligence involves researching the business’s history in terms of performance and identifying potential future opportunities and risks. Verification due diligence, on the other hand, is verifying facts and data learned during the discovery stage of your due diligence.

Unfortunately, a majority of buyers looking for business fail to focus on the potential of the business. Evaluate trends that may affect the future of your new acquisition, instead of analyzing every small detail of the financial statements for the last four years. Remember, you don’t get to own what the online business did in the past. Hence, strike a balance by using the past to predict the future.

Not setting expectations about training needs

You need a lot of information and assistance during the transition period of your new acquisition. The information in the hands of the seller can’t be learned by simply looking at analytical data and financial statements. A seller is ready to move on to the next project, and thus will be willing to share any nuances, facts and information about the business with any new buyer. The buyer has to set clear expectations about his or her training needs in order to avoid tensions and surprises. Make sure that you have a blueprint of ideas on how you would wish the transition to be conducted and be upfront about your expectations.

Investing outside of your budget

Spending an amount of money that you can’t afford to lose is a recipe for failure. Buying a business is a sensitive investment that should be approached with a lot of caution. Therefore, trying to move money from some emergency funds or your retirement account to fund such an investment might not be a wise strategy. Even the most established businesses lack the vital funds that most acquisitions fall back upon to recover some value in the event of a disastrous downfall. Make sure you understand the risks involved and avoid spending what you don’t have when buying a business.

Investing Outside of your expertise

Investing in a business that is outside of your areas of knowledge and expertise is a huge mistake because it may be too complex to differentiate between a bad and a viable investment. For example, if you don’t know the Houston area that well, or are not willing to relocate, you may want to avoid looking at businesses for sale in Houston. To learn about different types of businesses and the areas that they are located, you should enroll in an entrepreneur crash course to learn about the particulars of buying a a businesses before you even start looking for the perfect candidate for a flip.

Focusing on the multiple

Most businesses are valued at a multiple of their overall earnings. For example, if a business generates $200,000 a year in bottom line earnings, a seller may ask for a 3x multiple on the earnings, making the sale price $600,000. However, holding strictly onto the target multiple, without considering other variables may cause you to potentially overpay on a bad deal or lose out on a good business. Although the earnings multiplier strategy used by sellers and brokers in determining the selling price of a business is pretty effective, it has its significant disadvantages as well. For instance, the earnings multiplier approach doesn’t take into consideration the latest upgrades or changes to the business.

The process of finding the right business for sale is one that should be meticulously planned. In fact, the excitement of getting the right type of business that you have been searching for can easily lead you to make costly mistakes that will cause you substantial losses. Investing in a new business for sale requires a lot of checks and balances and an awareness of the market value of different businesses in different locations.