Buying a business is a substantial investment. You’re buying a business that has already been built from the ground up, and that doesn’t come with a small price tag, even more so if the business has an already established reputation and a loyal customer base. Hence, it only makes sense to spend a lot of time doing research, weighing your options, and even second-guessing your decisions.
Moreover, you have to keep a lookout for red flags that the deal may not be as great as it seems. Before making the huge financial decision to buy a business, here are some warning signs that you shouldn’t ignore:
1. Discontented staff
The staff is the most important asset of any business, and if they are unhappy, disgruntled, or discontented in some way, there may be something wrong with the business. In most cases, it’s the workplace culture, which can be incredibly difficult to change even under new management.
Visit the premises more than a couple of times to get a good feel of the place. Observe the staff and how they interact with customers, managers, and with each other. Do people seem happy in what they do? Or does the air drip with tension or stress? Are there any staff members that look particularly disgruntled or unhappy?
If there seems to be negativity within the workplace, it’s a sign that you have to do more research to find out what’s wrong. Striking up casual conversations with the staff can give you a good idea of what they feel about the company, and this can provide a good start of where you need to start digging.
2. Dishonesty or lack of transparency
Unless you are dealing with a reputable acquisition company such as Sell My Audiology Practice, you can’t be entirely sure if a business owner is being honest with you–or at least not omitting facts while answering your questions about the business. You will be getting most of your information from them, but if they are dishonest or are not fully transparent with the details of their business, this is a huge red flag.
If an owner has to be dishonest, then you can bet that they are hiding something from you that can affect your business in the future. Dig deeper if you feel that the owner is not being honest with you or downplaying critical information about the business. More importantly, trust your gut. If you feel like it’s a bad deal, jump ship and say ‘no’.
3. Poor business reputation
One of the most important factors that you have to look for while researching the business is its reputation. What are people saying about this business? Does the feedback seem generally positive? Or do negative comments take precedence?
Check out online reviews on Google and sites like Yelp or Foursquare. In addition, walk around the area and ask random strangers what they think about the business; this can give you an idea of the general reputation of the business among locals, which will be your main target customers.
If the feedback is generally poor, you might want to think twice before buying. A poor reputation can be an extremely difficult problem to fix, even if people find out that the place is under new management.
4. Failing equipment
When you take a look around the business premises, keep a lookout for poor or failing equipment. This includes outdated technology, worn equipment, ratty furniture, and faulty hardware. If you decide to push through with the deal despite this, ensure that the final price of the business factors in the cost of replacing the equipment that needs to be replaced. However, it is more ideal to buy a business with new equipment, or at least equipment that can still last for years until you need to replace them.
5. Messy financial records
Checking the business’ financial records is a critical part of doing due diligence. This step allows you to identify any problems that the business may currently have with taxes, debt, credit history, profits, and other financial aspects. Sweep through at least three to five years back of historical financial records, perhaps even more if time allows. If you’re not confident with your own skills, hire a finance company or a CPA to perform an audit for you.
If you’re buying a business, don’t let a seemingly too-good-to-pass-up deal cloud your judgment. Keep watch for these red flags, and when you spot even one, either do a little more digging or pass up on the deal altogether. You wouldn’t want to waste money on a business set out for failure, much less deal with the problems it can give you later on.