Released on: March 7, 2008, 3:43 am

Press Release Author: manoj kumar

Industry: Management

Press Release Summary: For many, the American dream of owning a business is in queue
right behind owning a home. I was a teenager when I owned my first business. Since
then I have bought or started many businesses and helped others do the same. Here
are some common mistakes I have witnessed or committed myself.

Press Release Body: For many, the American dream of owning a business is in queue
right behind owning a home. I was a teenager when I owned my first business. Since
then I have bought or started many businesses and helped others do the same. Here
are some common mistakes I have witnessed or committed myself.

Paying too much

This results from the combination of all other mistakes. Many new business owners
set themselves up for failure by paying too much, which results in higher loan
payments, lower operating funds, and reduced borrowing capacity.

Letting your emotions rule

If you have always dreamed of owning a business, it is very easy to get caught up in
the strong emotions invoked by seeing those dreams coming true. To counteract your
emotions, take your time, do your homework, and enlist the help of objective
advisors.

Paying for potential

You should only pay for the business as it stands at the date of purchase, not what
it could be in the future. You will have to spend time, effort, and money to develop
its potential. The seller chose not to invest these things, so he does not deserve
to be paid for them.

Not evaluating yourself

Do you have what it takes to run this business? Try to match your strengths to the
important duties you will be required to perform. Running a small business requires
the owner to do many things. No one can be good at them all, so make provisions for
those areas in which you are the weakest. Some tasks like payroll and bookkeeping
can easily be contracted to outside vendors. Possibly your spouse, other family
member, or a partner could do things that you cannot or do not want to do.

Not building a team of experts

At a bare minimum, you should enlist the aid of an attorney and a CPA. The attorney
can prepare and review documents, help structure the deal, and make you aware of
legal and liability issues. The CPA can provide a financial analysis of the
business, and advise you about tax and accounting matters. You should consider
adding a business valuation professional. His valuation report can be used to
determine the reasonableness of the asking price, negotiate a lower price, and
provide valuable information about the business, the industry, the competition, and
the economic conditions.

Relying on bad information

You should verify all important information about the business. Your CPA can check
financial information like receivables, payables, and inventory. Your attorney can
review loan documents, leases, and contracts. Your business valuation professional
can analyze the competition, the industry, and the economic conditions. Use
independent appraisers to value real estate and equipment. Get a credit report on
the business through your CPA or banker. You can do some of the investigating
yourself to save money, but do not cut too many corners - it may cost you in the
long run.

Changing too much, too fast

Once you own the business, you will be tempted to start making wholesale changes
from day one. You risk alienating long-time employees and customers. Unless the
business is in bad financial condition and needs immediate action, it's better to
take some time to get to know the business, your employees, and your customers
before making changes. This is a perfect time to solicit suggestions from employees
and customers.

Buying a business because you like to do what the business does

One reason restaurants have a high failure rate is people buy or start them because
they like to cook. Very few restaurant owners spend time cooking. Their time is
spent managing staff, ordering supplies, doing paperwork, and handling daily crises.
A small business owner must wear many hats - including that of manager.

Not being interested in the business's product or service

I made the mistake of thinking that because I am a CPA and smart that I could own
and operate any business. I bought a business that sold high-performance auto parts
to young men who drove jacked-up, four-wheel drive pickup trucks and went to the
drag races every weekend. I did not do either and never understood why anyone would.
I could not relate to my customers and went out of business in about a year.

Conclusion

Buying a business is a complicated, emotional process. By avoiding these costly
mistakes, you can prevent turning your dream into a nightmare.


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