Click Here
for more articles |
|
|
Don’t Let Passions Rule When Buying A Business |
by:
David E Coffman CPA/ABV, CVA |
For many,American dream of owningbusiness is in queue right behind owninghome. I wasteenager when I owned my first business. Since then I have bought or started many businesses and helped others dosame. Here are some common mistakes I have witnessed or committed myself.
Paying too much
This results fromcombination of all other mistakes. Many new business owners set themselves up for failure by paying too much, which results in higher loan payments, lower operating funds, and reduced borrowing capacity.
Letting your emotions rule
If you have always dreamed of owningbusiness, it is very easy to get caught up instrong emotions invoked by seeing those dreams coming true. To counteract your emotions, take your time, do your homework, and enlisthelp of objective advisors.
Paying for potential
You should only pay forbusiness as it stands atdate of purchase, not what it could be infuture. You will have to spend time, effort, and money to develop its potential. The seller chose not to invest these things, so he does not deserve to be paid for them.
Not evaluating yourself
Do you have what it takes to run this business? Try to match your strengths toimportant duties you will be required to perform. Runningsmall business requiresowner to do many things. No one can be good at them all, so make provisions for those areas in which you areweakest. Some tasks like payroll and bookkeeping can easily be contracted to outside vendors. Possibly your spouse, other family member, orpartner could do things that you cannot or do not want to do.
Not buildingteam of experts
Atbare minimum, you should enlistaid ofattorney andCPA. The attorney can prepare and review documents, help structuredeal, and make you aware of legal and liability issues. The CPA can providefinancial analysis ofbusiness, and advise you about tax and accounting matters. You should consider addingbusiness valuation professional. His valuation report can be used to determinereasonableness ofasking price, negotiatelower price, and provide valuable information aboutbusiness,industry,competition, andeconomic conditions.
Relying on bad information
You should verify all important information aboutbusiness. Your CPA can check financial information like receivables, payables, and inventory. Your attorney can review loan documents, leases, and contracts. Your business valuation professional can analyzecompetition,industry, andeconomic conditions. Use independent appraisers to value real estate and equipment. Getcredit report onbusiness through your CPA or banker. You can do some ofinvestigating yourself to save money, but do not cut too many corners – it may cost you inlong run.
Changing too much, too fast
Once you ownbusiness, you will be tempted to start making wholesale changes from day one. You risk alienating long-time employees and customers. Unlessbusiness is in bad financial condition and needs immediate action, its better to take some time to get to knowbusiness, your employees, and your customers before making changes. This isperfect time to solicit suggestions from employees and customers.
Buyingbusiness because you like to do whatbusiness does
One reason restaurants havehigh failure rate is people buy or start them because they like to cook. Very few restaurant owners spend time cooking. Their time is spent managing staff, ordering supplies, doing paperwork, and handling daily crises. A small business owner must wear many hats – including that of manager.
Not being interested inbusiness’s product or service
I mademistake of thinking that because I amCPA and smart that I could own and operate any business. I boughtbusiness that sold high-performance auto parts to young men who drove jacked-up, four-wheel drive pickup trucks and went todrag races every weekend. I did not do either and never understood why anyone would. I could not relate to my customers and went out of business in aboutyear.
Conclusion
Buyingbusiness iscomplicated, emotional process. By avoiding these costly mistakes, you can prevent turning your dream intonightmare.
Aboutauthor:
David E. Coffman CPA/ABV, CVA has threezero years of experience working with and operating small businesses. His web site http://biz-buying-selling.comoffers many useful articles, links, and other resources for potential buyers and sellers of small businesses.
Circulated by Article Emporium
|
|
