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Business Buyer Beware

Wednesday, August 17, 2011

Have you always wanted to be your own boss but are afraid of the risk of starting a new venture from scratch?

Many people in that situation think that buying an existing business will mitigate the risk of a start up. Please believe us when we say that there are a great many risks and caveats to consider when purchasing a business.

While it is not always so, we have had many people come through our doors who have made business purchase decisions without considering all of the important factors. The result is loss of hard-won savings, time, anguish and lost opportunity.

The Canada/Manitoba Business Service Centre has some good information available on evaluating and purchasing a business. Based on some of the heartbreaking mistakes we’ve seen, here are additional thoughts you may want to consider and red flags to watch for if you are considering taking on an existing enterprise:

· The current owner doesn’t want to share any of the financial data until you show that you are serious (i.e. put down a deposit);

· The financial statements you received are internally generated (i.e. they are accounting program print outs rather than accountant-prepared statements);

· The current owner only provided the current year’s statements without any history to show whether sales or profits have declined significantly;

· The seller tells you that the business actually does much better than the statements show but ‘that is just for tax purposes’;

· ‘Good Will’ is the largest asset on the balance sheet;

· You haven’t researched whether there will be major construction, road closures, water-main repair, etc. in the vicinity of your proposed place of business;

· You haven’t checked to see whether a major competitor is planning to open nearby;

· You haven’t talked to existing customers to assess whether there will be a change in relationship once the current owner departs;

· You haven’t checked to see if a near-by business with a strong draw is closing down, thereby affecting traffic to your establishment;

· If the business is in rented premises, what is the relationship with the landlord? How easy will it be to renegotiate the lease? Is the building owner thinking of selling the building? Is he/she cooperative when it comes to repairs and replacement of major equipment?

Believe it or not, we have heard stories about every single one of those points from clients who come to talk to us after they’ve made a major deposit or bought the business.

We recommend that you always talk to a professional accountant and a lawyer before making such a major purchase decision. And by all means, if you are a woman or a 50% woman-owned partnership, come to see us at the Women’s Enterprise Centre.

We’ve seen it all!

Posted by Sandra Altner at 10:47 AM