Business

Warning signs to look out for when buying a business

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If you’re looking at business opportunities for sale there are warning signs that have the potential to negatively impact your financial future. If you identify these signs before you make an offer, you could save thousands and avoid unnecessary heartache.

While there are many thriving businesses for sale for legitimate reasons, there are also a lot of businesses that have skeletons in the closet. Before you dive in and close the deal, doing a thorough investigation beyond the asking price really pays off.

Here are the top warming signs to look out for when scoping out business opportunities for sale:

  1. The business has been neglected for over 12 months

When most business owners make the decision to sell some tend to limit the amount of additional time and money they invest in the business to encourage future growth. This could be evident in equipment that requires repairing or replacement, a lack of staff training, out-of-date software, no marketing or reduced new business.

If the business owner has lost interest and already moved on, you could end up having to invest a considerable amount of capital or be faced with slow sales thanks to their neglect.

  1. The business has poor customer reviews

Customers are the drivers of every business and without them your financial investment is doomed. Don’t take the sellers word for it, do your own online research to gauge the customer’s opinion of the product, service and business in general.

If you’ve discovered consistent poor reviews, it’s a clear warning people are going to shop elsewhere. You’ll need to consider whether you can reverse this customer mindset and repair the reputation or move on.

  1. You’ve discovered red flags as a shopper

When considering any new business, it’s worth taking the time to shop undercover as a customer. You’ll want to assess the customer service, consider the look and feel of the premises and note the general activity in the business.

Red flags the business isn’t what it seems are unenthusiastic or unhelpful staff, no other customers or a tired looking fitout.

  1. The business has a bad credit history

A credit reference check online will help you ascertain the history of the business paying its suppliers as well as any pending legal action or claims against the business. By buying the business, you’ll be adopting the poor credit history and may be faced with large outstanding bills.

If you do uncover warranty claims or legal action, consider asking for a price reduction or walking away entirely.

  1. There is poor employee performance

By buying an existing business, you’re going to be relying on current employees to help you navigate the systems, develop client rapport and continue generating sales at least over the next 12 months.

Employees lacking in performance is a warning sign they’re disgruntled or not emotionally invested in the business and may be considering leaving when the sale goes through.

  1. The industry is on the downturn

Many business owners choose to sell due to a change in the performance of the industry impacting their growth. Understanding where the industry is currently at and the forecast for the next three years could spare you from financial disappointment.

Research the overall industry performance, scope out existing competitors and monitor potential businesses opening up in the same space.

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