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Acquiring a business is a milestone to be proud of. Buying a second business will diversify your investment portfolio and help you reach customers you might not have had access to earlier.

Today's blog helps you avoid common pitfalls buyers encounter when acquiring an existing business. If you want a trouble-free experience, hire First Choice Business Brokers to help you through the process and ensure you buy the right business for your needs.

1. Why Are You Selling Your Business?

The first question you might ask the owner is why are they selling the business. Their answer will shed light on aspects of the business you want to understand from the start. Of course there are many reasons to sell.

The key here is to find out what the actual reason is. If there are losses in the business, you need to be aware of them. You want to avoid being saddled by a company losing money. Look for transparency during the due diligence phase to uncover concerns. A business broker can help determine why an owner is selling their business.

 

2. Do You Have Plans For The Business In The Future?

Business owners acquire other businesses to boost profits and improve their investment portfolios. As a buyer, ask the seller what plans they have for this company's future growth and development.

Sellers generally leverage future plans to justify their sales price during negotiations. A buyer is looking towards the future with any company they buy. Existing development projects can help a buyer envision this company's future.

3. How Recently Have You Audited Your Business?

One of the most critical parts of buying a business is to check and verify specific metrics of financials and operations. Auditing a company sheds light on the "internals" of a business. Both seller and buyer will appreciate an unbiased third party qualified to evaluate the business.

A business that hasn't been audited in many years is a definite red flag for a buyer. It indicates that the seller is unaware of what is really happening in the business or does not want to uncover poor metrics. Either way, the buyer can ask for verifiable metrics during  due diligence.

4. Can You Share Your Financial Details?

When meeting with a business owner in New York, asking about financial details is expected during a sale. This is especially true when you need to know the financial situation of the business you're going to buy so that you can have your finances in order. Your banker or lender will be asking for specific information including current revenue streams and profits.

Business sellers should present detailed financial information even if the business could be doing better. Financials are the most straightforward way buyers can gauge the health of a business. The critical aspect to look for here is the transparency of the seller. The sale can continue as long as they are forthcoming with their finances and the numbers are acceptable to the buyer and their lenders.

5. Does Your Business Have Liabilities?

The buyer will ask sellers about the status of risk and  liabilities. Ideally, a business for sale should have mitigated any risks and resolved existing liabilities. This information should be disclosed to the buyer at the time of sale.

Potential risks can be uncovered during the due diligence phase of the sale.  A CPA  review of the company's books, accounts, and records may uncover important information. A CPA can verify the business's current value, assets, and amounts needed to settle all debts and liabilities.

6. Are There Any Previous Or Pending Lawsuits?

You want to be aware of any legal issues concerning your potential acquisitions as a buyer. Depending on the magnitude, legal problems can become challenging to deal with. The seller may have some previous lawsuits pending against them. A business tied up in courts is a poor investment.

You must complete due diligence before buying a business. If you suspect a legal issue, do your research and ask about previous lawsuits and whether or not they have been settled. You also want to know whether any legal actions are still pending. These answers or lack of  truth will directly affect the sale.

Asking difficult questions may be awkward for both the seller and the buyer. But the tough questions are necessary especially during the due diligence phase, when the sale is not yet final. If you find all this process difficult, you can call FCBB in New York. Trained advisors handle negotiations and are sure to uncover liabilities during due diligence.

First Choice Business Brokers - New York has an outstanding track record of matching buyers and sellers for successful outcomes. Our expert team connects buyers to the best potential businesses in the area. Your advisor stays with you, providing guidance and professional advice as needed. Call FCBB for a consultation about expanding your investment portfolio.