It’s easy to overlook small things during the intense negotiations for a small business. However, neglecting some details can lead to disaster for the buyer. Below, we explain some key things you can't overlook when buying a business, from liabilities to employees and more.
The last thing a buyer wants is to purchase a business and then be hit with tons of legal liabilities and debts for which they're on the hook. When performing your due diligence and researching a business, closely examine any litigation and possible future legal liabilities. When you take over, will you inherit any liens or judgments from the business? You should carefully consider these legal details during negotiations.
During the negotiations between buyer and seller, there'll be a lot of emphasis on the business's tangible assets. Still, one thing you can't overlook when buying a business is its intangible assets. Intangible assets are the assets that can't be easily quantified on a spreadsheet, such as:
There's a lot to know about intangible assets when buying a business, as they can determine if a business is undervalued or overvalued. Judging and valuing such abstract assets for a business can be challenging, which is why hiring a professional appraiser or business broker is often best.
Don't forget to consider why the owner wants to sell their business in the first place. If you stumble across a profitable business selling with a deal that's too good to be true, it just may be. The owner may know the industry better and understand that the value of his business will never be higher than it is right now. This is why careful research and due diligence on not just the company but the entire industry and market is crucial.
Lastly, employees are fundamental assets to any business, so buyers should examine how well the company has retained its employees and whether they can expect stable employee retention when they take over. For small scale industries, employee retention is especially important. If a small business has a lot of employee turnover, that's a red flag for buyers. Ask the seller how much of the payroll will stay with the new owner and what they'll do to ensure a smooth transition.
Buying a business is demanding and challenging, with many aspects and details to consider. But during negotiations and when doing your due diligence, don't overlook these key details to ensure you find a suitable business and reach a fair purchase agreement.
