Common mistakes One Could Make When Buying A Businesses

 Common mistakes One Could Make  When Buying  A Businesses


Common mistakes One Could Make  When Buying  A Businesses - mistakes of lack of due diligence, legal documentations, not understanding accounting principles etc. The processes of buying a business, or merging with  a business, are complex ones and requires basic legal and accounting knowledge. This is also because a lot of paper work are involved, and lots of money are expended for several logistics that are not so related to the business but are necessary to get there.

Common mistakes One Could Make  When Buying  A Businesses

Common mistakes One Could Make  When Buying  A Businesses

Consider also that there could be some emotional issues with one selling his/her, may be,  only  life investment. Understand too that some people who just come across huge sums of money in their lives, may be windfall type, may not bother about due diligence. But in common situations there are likely going to be  certain mistakes that could occur. 

In this article you will get to know certain actions you should watch when buying a business. The fact is that utmost care is required to take such actions.

THE COMMON MISTAKES

1 Don’t sign documents in your own name.

You would not see anything wrong signing documents in your name. Bu I'm saying don't try this. Your business as a legal entity is the one buying or selling, you can only sign for the business. If you sign documents in your own name, you are taking on liabilities  that are beyond  you. If you don't already have an incorporated firm do so immediately. It is this your business that will buy or sell the business for you.

2 You  don't understanding why the business is for sale.

Knowing the business  details will  help you negotiate properly . Knowing these details will certainly  prevent you from making a mistake about the status of the business and the owner's intentions for selling the business.  
If an owner is facing a bankruptcy  issue personally, you should understand that he is in desperate need of cash and can sell cheaper. Get closer to the seller informally and see if you can have a clue to some of the hidden reasons for selling.
Knowing the details of the business and its environment may also help you make decision of whether to continue in the deal or not. For example, if the business has been making loss for three consecutive years, how do you think to bring the turn around. This knowledge can also help you buy it cheaper.

Common mistakes One Could Make  When Buying  A Businesses

3 Do not think  that things will remain the same.

Do not think that the business will remain the same after the purchase and introduction of new owners and perhaps new management team. The day the business is sold, the business valuation changes. This is because a  new owner will always do things differently, and have a different relationship with employees and customers.
The question is, how do you see the business after buying it? What value do you now attache to it?

4 Knowledge about  goodwill:

 Goodwill is an intangible asset, it defines the level of customer loyalty or patronage the business enjoys. Some goodwill are  locational,  i. e, based on the location of the business. It could also be  industrial ,i.e. based on the nature of the industry. Understanding Goodwill will enable the buyer determine its value.
It pays if you buy a business that has customer loyalty based on the brand name and market share. What I'm saying is that you must watch out for this while buying a business.

5 Being careless about  due diligence:

Due diligence is the process of investigating A – Z  about the business from a financial to a legal standpoint before buying the business. Due diligence reveals to you what the business owns and what it owes. 
Remember that the value of the business may simply be defined as the difference between what the business owns and what it owes, that is the net worth.. Any mistake in any of the valuation components/ variables will certainly affect the value of the business.
All of these means that you have to do your home work properly. In a common parlance, Nigerians would say " shine" your eyes.

Common mistakes One Could Make  When Buying  A Businesses

6  Being a Mr Know- it -all :

Business acquisition and all that is involved in it is not what you can do all alone. You need the services of professional accountants, tax practitioners and lawyer for necessary documentation.
Whether you like it or not, the professional barriers here, in executing some of these activities, would be beyond your knowledge.
 Hire a consultant. Pay him well and he will save a lot for you. I bet you, for every ten thousand Naira you pay a consultant, you gain one hundred thousand.

 7 Rushing into  Making changes :

Changes are inevitable, but we know that one of the factors of production “Labour” is not always easy to manage and can always resist changes. Rushing into making changes could make you lose skilled and essential employees. The best approach is to slowly follow up issues and make changes as per need comes up.

Common mistakes One Could Make  When Buying  A Businesses

In Summary, if you are considering buying a business, do well to  get some good business advisors in place. Contact a Consultants for your due diligence needs, advisory/coaching, taxation and other financial accounting services.

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