Due diligence for buying an existing business

Buying an existing business can be a good way to start a career into a new direction. If done right, it can be an opportunity full of promise. If done wrong, it can be a headache full of cussing and vengeful wrath. In this article, a bad situation is going to be outlined so that you can study it and go through step by step again making the right choices.

Before buying a small business, the question needs to be addressed of why the business is being sold. Don't go to the owner and ask because they probably won't give you the right answer. Why should they tell you the weaknesses of it? They are trying to get out of it, so be objective in the questions that you do ask and be thorough in finding out the real state the business is in.

Here is a story of a man named Jim. Jim was offered a great deal on a trucking business an acquaintance was going to sell. Jim saw the business books and it looked like a high quality opportunity. They went to friends in the business and asked them what they thought of the idea of them buying this business. Everyone told them that it didn't matter how the business looked, the person they were buying from had a history of lying and stealing, so they would better off not entangling their money around anything he had to offer. They shook their heads and didn't heed the wise council of their experienced friend.

Jim and his friends went ahead and bought the business with glee and felt as though they had just made the investment of their lives. As the months went by, they slowly began to realize things were going slow and unsuccessful. After a couple years, they were in the hole and owed large sums of money. They went back and rechecked the books of the business from before they had owned it to make sure that they had really bought a legitimate business. With their stomach in their throats, they realized that the books had been falsified and that they had bought a business that was just about force the former owner into bankruptcy. They knew that at this point, too much money had been spent and that it would be impossible to save the business. They closed the business and declared bankruptcy. They had to spend the next four years paying off large sums of money to get themselves back into the same financial situation they had started in.

What is the lesson to learn here? The lesson it that buying a business from someone is a serious investment and takes serious thought and money. Making a wrong decision cannot only slow you down, but can actually put you way behind financially. When buying a business, make sure that the person selling it is trustworthy and the business itself has a reputation of quality. Go over every aspect of the business carefully with an accountant and then go over the contract again and again with a good lawyer. Make sure your butt is covered. Unless of course you like making it an easy target for someone to kick until it is raw. Business can be a tough and mean place if you don't take the necessary measures to protect yourself financially.

Taking due diligence when buying a business will ensure a fair transaction that will benefit your current position, and your position in the long run. Work hard to take opportunities like these and use them to make your own business larger and better.

Due diligence should include:
Research
Paying an attorney
Knowing the market
Knowing the state of the business