Avoiding the pitfalls of buying a business

So, you've decided to buy a business and your accountant has verified that the books and sales figures are as-claimed by the seller, now what...? Well, our advice is: "be very, very careful!" You see, we have not yet encountered a seller that has not "cooked the books" to make their business appear a lot more profitable than it really is. They will tell you little fibs at best (and bold faced lies at worst) to offload their business. Here is but a small sample of the dozens of tricks we have encountered over the years:

Business seller trick number 1

The seller tells you that the sales figures have a large undeclared cash component, which they have pocketed without showing on the profit and loss ledger. This may (or may not) be true, but as far as you, the business buyer, is concerned those claims cannot reflect the purchase price. These undocumented figures should be treated as if they don't exist - which they quite frequently don't.

Business seller trick number 2

The seller under-declares expenses. This is quite common, but not exclusive to cash businesses. In this scenario the seller either buys stock for cash or pays the employees in cash, thereby making the expenses appear smaller than they really are. These discrepancies are often the difference between making a net profit or loss.

Business seller trick number 3

Most businesses have a unique differentiator. These may come in the form of location, supplier agreements or intellectual property. Quite often, the motivation to sell comes from the imminent loss of one or all of these advantages. For example, a fierce competitor might have signed a lease just across the road, or a major supplier has lost an important product line, or a patent is about to expire. Would you like to buy into a business like that?

When these facts come to light, they are usually a deal-breakers, but sometimes they don't have to be. This is where we come in. We look beyond the figures, we dig deep and get to the core of the business and advise you whether or not it is viable and at what price.

If you are about to buy a business, please call us. We will ensure that the business you buy is a winner!