Buying a Business? Avoid These 5 Major Mistakes
The one common denominator that most millionaires have is that they own their own business. Here is a quick summary of items to check so that you have a better chance of becoming a millionaire – avoid these 5 major mistakes when buying a business.
1) Due Diligence, Due Diligence, Due Diligence
Doing a solid job of due diligence will help you avoid buying the wrong business or paying too much for the business.
2) Not Having Enough Cash Reserves
Do not buy a business until you have the necessary funds to both buy the business and the necessary funds to keep it open after the purchase.
3) Assuming Cash Flow will Cover Debt
There will always be a transition period when buying a new business. The transition can impact cash flow.
4) Paying for Potential
Not a mistake every time, In many smaller businesses though and much of the mid-market, the value of the business is based on the condition at the time that you purchase it. There may be circumstances where potential is worth $, such as in a franchise or other proven situation, areas such as patents, devices and other situations where there is value in potential. Potential is something that typically requires your expertise & research to continue & make prosper, then it becomes your choice to guage the potential and possibly negotiate the price through an earn-out agreement to avoid full risk.
5) Wrong Entity Structure
Consult an attorney and possibly an accountant or financial advisor to help determine what the best entity structure for you is.
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