A business purchase involves a lot of consideration before you make a final decision. Unfortunately, pitfalls are par for the course, so it’s important to be aware of some of the most common ones. Read on to learn more before you get anywhere near the business escrow process.
List of Contents
It May Take Longer
Remember, scouting for a potential business to purchase doesn’t happen in a day. The hunt may take a long time, so enjoy the process. It’s a good idea to have multiple channels to source options from. You might find it helpful to reach out to your network. Contact business brokers and investment bankers in your area. There are even platforms online that you can use for your search, such as BizBuySell, BizQuest, and BusinessForSale.com. These online options are so fluid that they require frequent monitoring if you’re a serious buyer.
Financial Due Diligence
The process doesn’t stop once you’re done listing all of your business options. You still need to narrow down your selection. This can be challenging, though. For instance, if you’re planning to acquire an e-commerce business, there are a variety of products sold on the web. Choosing a niche will affect your revenue size. Another example of a financial due diligence pitfall is when the company you’re interested in claims that its sales can result in a certain dollar amount, only to find out that considering its expenses, you’d be left with significantly less in profits. This is something you definitely want to be aware of before moving on to the business escrow phase.
Operating Issues Exposed During Due Diligence
Due diligence pitfalls are very common in a business purchase. Most of the time you can only discover operating issues during due diligence. You may find this a waste of time and effort, especially if you have opted out other options just to choose a company with due diligence issues. Sometimes companies market themselves as businesses that generate a lot of customer traffic. The problem arises when you uncover the fact that they are only relying on some major sellers to attract customers to their store or website.
Exaggerated Valuations
As a business owner, it’s fine to promote the best aspects of your business, but not to exaggerate its financial worth. Unfortunately, you will likely encounter this in a business purchase. Many business owners don’t know how to clearly determine their company’s worth and this can result in very high asking prices.
Ready for a Business Escrow?
Before you agree to a deal, make sure that the important parts of your transactions are secured. Hiring an escrow team can help! Contact us at (925) 831-9099 to learn more about the business escrow process, or email us online. We’re here to answer all your business escrow questions.