The 6 Biggest Mistakes Made When Buying a Business

Have you considered the possibility of purchasing a business? If so, there is a good chance that you may make one of the many mistakes that
March 21, 2011

Have you considered the possibility of purchasing a business? If so, there is a good chance that you may make one of the many mistakes that are common in people purchasing pre-existing businesses. But it doesn’t have to be that way; you can take steps to avoid these problems.

 

Pitfall avoidance

 

Buying a business can be your worst nightmare, or it can be the greatest move you ever made. But a lot of what determines which it will turn out to be occurs prior to the transaction actually taking place. Like most situations, the more homework you do when considering the purchase of a particular business, the better off you will be if it comes down to making the actual purchase.

 

Here are six of the biggest mistakes that people make when buying a business:

 

1.  Due diligence failure. Businesses that are for sale need to paint the most promising picture they can. Why else would you buy? It’s kind of like realtors working with homeowners to stage the home when they put it on the market. The business owners may try to make the business look amazing, but you shouldn’t take it at face value. You have to follow up and investigate, to ensure that what they say is accurate. 

 

 

2.  Thinking that culture doesn’t matter. Take a frozen mug and pour hot water on it. What happens? It cracks! It is the same thing with business cultures. Buying a small business that runs like a family and putting it into a corporation that runs like, well, like a corporation, and it will most likely crack. You have to take the company culture into consideration, and determine if it will be the same once you, or your team, enter the picture.

 

3.  Merging too fast. Change that takes place at a slow but constant pace will work much better than change that happens too quickly. When change happens fast, there are often too many breaks and problems that arise as a result. Taking over a business is a major decision, one that you certainly don’t need to rush. Aim for a slow, smooth transition to get the best results.

 

4.  Leaders don’t participate. To be a good leader, you have to be there, participating on a routine basis. The leadership of the acquiring company needs to participate, not just beforehand, but also after the deal is done. It is imperative that they show their faces and do their job, which is to lead!

 

5.  Knowing the org chart, but not the social chart. Every company has an organization based on title, but there are is something more powerful than titles – the social influencers in the business. Those who acquire a business need to find out who those people are. Susan the receptionist, who brings in treats from home every day and is loved by every employee, can actually be more important than the CEO. And the acquirer needs to know this.

 

6.  Not negotiating properly. Let’s face it – a lot of people are not so good at negotiating. If someone wants to sell their business, you have the upper hand and should use it to your advantage, negotiating terms that are more comfortable for you. If you are someone who has a difficult time playing hardball, then bring in someone to do the negotiating for you. Believe me, they will be well worth the expense, making up for it in what they can save you, over time.

 

Ready to roll

 

Only once you have done your homework are you ready to actually buy a business. This is one sale that simply cannot fall into the “impulse purchase” category. It has to be something you have fully investigated, believe in, know all about, and are confident and comfortable stepping up to take over.