What to look out for when considering buying a business
Let the Buyer Beware
Did you know buying a business is not covered by consumer rights legislation? Though most shops have policies and procedures on returned goods, we do not have the same policies in the process of buying a business.
That said, there is one legal principle governing the sale of a business – Caveat emptor. Caveat emptor is a Latin phrase, meaning “let the buyer beware”. It means that the buyer is responsible to make sure that the business they are considering purchasing is what they expect it to be. Therefore, due diligence becomes an integral part of the buying process.
Conduct Due Diligence
Regardless of what business you are buying, it is important that you are sure of what you are getting into by conducting due diligence. Due diligence, as the name suggests, is a detailed appraisal that reviews all relevant information related to business, especially in the context of legal and financial issues. Therefore, the due diligence should be done thoroughly, leaving no hidden unpleasant surprises.
While this due diligence process will give you a clear idea of the business’s value, it also flags up existing or potential negative aspects the seller did not highlight. Getting to know what is wrong / what are the hidden risk will help you to make better decision. Hence, do not be afraid to ask for legally binding guarantees and warranties. You will have a better and clearer picture of what business you are buying, where is the business today, where you can take it in the future – after the thorough due diligence process.
Seek Professional Advice
It is important to obtain professional advice and help from lawyers and accountants Buyers when carrying out due diligence. Please do not skip the professional advice for the sake of saving up money. It is advisable to spend some money up front than to suffer the negative consequences at later stage.
Ask Yourself: Is It Too Good To Be True?
Another thing to look out for is the offer too good to be true? If you think the offer or the deal sounds too good to be true, conduct the due diligence to find out if there is any red flag. It is even more important if you are exploring opportunities to work from home, or looking at drop-ship, affiliate marketing or other similar opportunities.
Long story short, it is important to get the independent advice when you are considering buying a business, even if it might cost you an arm and a leg.