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In purchasing an established business, you can eliminate some of the issues associated with starting a brand new business, such as building a customer base or brand and developing products. However, you may also acquire its debts and, possibly, a bad reputation. While the opportunity may be less risky in some respects, you must perform due diligence to ensure that you are fully aware of the terms of the purchase. This process can be complex, and you should consult an expert before beginning. Keep in mind that you will eventually want to employ the services of your banker, accountant, and lawyer before closing the sale.
There are favorable aspects to buying an existing business, such as drastic reduction in startup costs and the ability to increase cash flow quickly. In addition, it’s generally easier to get financing for an existing business than to start a new one. Bankers and investors often feel more comfortable dealing with a business that already has a proven track record. You may even acquire potentially valuable and profitable copyrights and/or intellectual property.
On the other hand, purchasing costs may be much higher than that of starting a new business because of the initial money that has been invested in the business concept, customer base, brand, etc. Also, be aware of hidden problems associated with the business like uncollectible accounts receivable. If you don’t do your due diligence, you could find yourself dealing with unforeseen and costly issues like obsolete products or insurmountable debt.
As you may have guessed from our emphasis on the importance of researching and due diligence, one of the most common mistakes is the failure to verify all data. Many potential purchasers will accept information given to them as accurate without personal or professional verification. This can lead to a burdensome future with your new purchase. Below are a few other mistakes purchasers often make.