When you purchase a business, you want to feel assured you have made the right investment. As crucial as it is to look for signs that indicate a great opportunity, it’s equally important to recognize warning signs of low success. Sure, you can purchase a business with the intention of fixing noticeable issues, but that’s much easier said than done. This can be especially challenging for a new buyer or first-time business owner. Nonetheless, if you are going to purchase a business, be cautious of these three risk factors.
As you consider whether to purchase a business, you’re going to encounter several figures. The numbers should tell you about the value of the company in question. But what value will give you the best idea as to the return on your investment? For that, you’ll want to look at the SDE, or seller’s discretionary earnings. Essentially, this figure represents a business’s profitability and reflects the amount of money you can pay yourself. If this value is low or has been on a decline in the past few years, this could tell you the business is not worth your investment.
During every buyer’s due diligence, reviewing financial records is a crucial step. This phase could potentially reveal any debts or unpaid sales taxes that the business owes. While debts can follow the original business owner, the burden of paying missing state and local taxes can fall to the new owner — you. Repaying these late fees and fines can put you at a disadvantage before the business can even reopen under your new ownership.
People don’t want anything to do with businesses that have a bad reputation. Plus, public trust is hard to restore if it’s already lost. Customers aren’t so forgiving, even if the business operates under new ownership. For these reasons, remember to check various sources to get an idea of a company’s public reputation. Look at their BBB rating, customer reviews, even public records of complaints filed against the company in question before you purchase a business. Perhaps the seller is exiting in the first place because they feel their public image is ruined.
Buy With Atlantic Business Brokerage, Inc.
At Atlantic Business Brokerage, our mission is quite simple; we help sellers sell businesses, and buyers buy businesses! Over the past 30 years, ABBI has facilitated the sale of countless commercial properties, businesses, and franchised locations. With our unparalleled knowledge of the business purchase and sale industry and our network of contacts, we offer services to both buyers and sellers that no other brokerage firm can match.