These days, there may be businesses available for purchase at bargain rates. If you have the capital to invest wisely, you can get a business that is fundamentally sound but was crippled by the pandemic. Today could be a great time to buy, but you shouldn’t assume everything will go as expected.
There may be unforeseen events. For example, one small business told the Associated Press that they meant to keep the previous owner on for five years as a mentor while they learned the business. He died six months in.
There could be situations you never thought to investigate, such as uncooperative staff or outdated technology. Of course, due diligence will reveal some possible risks, but business advisers warn that there simply will be some unexpected surprises whenever you buy a business.
Buying a business can still be a good way to get a leg up on the competition. As long as you have a clear idea of where the business truly stands, you can bypass much of the chaos of starting from scratch.
What does due diligence entail?
Due diligence is basically the effort of finding out where your potential purchase stands, financially and in the market. It can involve anything that you think would be helpful to know, such as:
- Examining the business’s books and financial records
- Talking to employees and understanding the company culture
- Interviewing customers
- Touching base with vendors and suppliers
- Finding out if there are pending or potential legal claims against the company
- Determining their insurance claims history
- Getting to know the company’s technology
- Ascertaining the state of the company’s intellectual property
- Looking into the company’s retail locations
- Surveying the market and market needs
Due diligence can mean some heavy lifting. Naturally, a company that is negotiating a sale won’t tell you about the warts. Take everything they tell you with a grain of salt.
Even after you have completed your due diligence, there will be a surprise or two. It’s best to plan for that, even setting aside funding for how to address them.
Buying a business involves a leap of faith. Get as close to a true picture as you can, then get ready for the unexpected.