Top 10 Mistakes When Buying a Small Business

You are considering whether to buy a business or not. Before jumping into this important venture, there are many things to consider before buying a company. Understanding the most common mistakes to avoid when buying a small business will help ensure that your own business will not turn into a flop.

1. Buying the Wrong Type of Business
   In the urge to own a new business, some people buy a business that does not fit their particular sets of skills. Why buy a hamburger stand when your experience is in buying and selling auto parts?
2. Not Digging Enough During Due Diligence
   Due diligence is the time when you ascertain the financial health of the business. A business may seem profitable, but may be sitting on a pile of bills and unattractive contracts that you would only find during due diligence.
3. Signing a Document in your own Name
   Never, ever sign any contracts or other legal documents in your own name. If you sign anything with your name, you may be putting your personal assets at risk. Set up a corporation or LLC to use when buying a business.
4. Not Understanding Everything the Contract Says
   Make sure that you understand all of the legalese before you sign a document. Assuming that the legal terms are just fluff may end up biting you later. Remember, once a document is signed, the deal is done. Saying that you did not understand the terms will not matter once you sign on the dotted line.
5. Using Verbal Agreements
   Verbal agreements are difficult to enforce. Get everything in writing. This extends to any partners that you may have in the deal.
6. Not Using Experts
   Consult with experts during the process of buying a business. Have your lawyer, your accountant and your bank involved. You may be good in business, but you may not know all of the legal and financial ins and outs of buying a business.
7. Overspending I
   You may spend too much money on buying a business if you do not thoroughly investigate the business, its customers, its suppliers, its competition and its industry before you buy. It is also important to understand why the business is being sold.
8. Overspending II
   Some people overextend themselves financially when buying a business. Even if you have done all of your homework before you bought your business, you will still need a cushion. If you overextend yourself, you may be putting your new purchase at risk.
9. Disregarding Brand Loyalty
   If the business you are buying has a clientele that is loyal to a brand, abruptly changing or dropping the brand will lose you easy money.
10. Making Big Internal Changes Quickly
    Huge internal changes can unnecessarily disrupt the business and lead to loss of valuable talent. Do you really want to spend all of the time and money training new personnel?