If you are new to business ownership, or are considering buying a business for the first time, it is important that you understand the ins and outs of the business buying process; otherwise you might end up making a very costly mistake. Here are some typical blunders that inexperienced entrepreneurs make:
Using your own name for the business:
You should not put any kind of legal contract or business agreement in your own name, nor should you make the business name the same as your legal name. When you purchase a business, you will need to set up a LLC or corporation to protect your personal assets from litigation related to the operation of your business.
Buying a business you know nothing about:
First-time business ownership is hard enough without having to start at ground zero. If you have always wanted to buy a restaurant, but have never worked in one, it would be a big mistake to choose that industry. Choose a business in an area where you have experience because as the owner of a business, you need to know what the business needs.
Not doing your homework:
Why is the business for sale? Is it just because the owner is retiring, or are they jumping off a sinking ship? You will have the due diligence phase to determine what, if any, the problems are, and then you will have the opportunity to amend your offer or walk away from the deal all together. This is a critically important step, as you don’t want to discover problems after the business is already yours.
Trying to rebrand too soon:
Unless you are buying a business with a horrible reputation, a new owner should tread carefully with regards to changing the business. You bought the business because it was an established company with a good reputation, and you don’t want to drive away customers familiar with the brand by immediately dismantling everything they know about the business. The established image may have more to do with the bottom line than you know, so make changes slowly.
Running out of money:
It may take several months to get a business transitioning to a new owner profitable again, so leave yourself enough operating capital to keep the doors open. Many new owners walk into a functioning business and immediately spend far too much on unproven improvements, digging themselves a very deep financial hole in the process.
Not understanding the importance of marketing:
You may have bought an already established business, but that doesn’t mean that you can forgo marketing and promoting the business. Many established businesses already have a customer base, but keeping those customers coming back and bringing new ones in is a responsibility that now falls to you. Advertising needs to be a top priority as the new owner.
The most important thing you can do as someone who wants to become a business owner is find the right help. If this is a process you’ve never gone through before, find a good business broker to help you along the way. Having assistance through this process will save you from making many of the mistakes that first-time business buyers make, mistakes that can be very costly.
Are you thinking about buying a business for the first time, but want to avoid the blunders listed above? Do you have additional questions about the business buying process? Contact us or leave a question here and we will be happy to assist you on the road to business ownership.