Top 3 mistakes when buying a business
There are many things to consider when buying a business, and it’s only natural that first-time buyers going through the process alone will make a mistake or two. As experienced business brokers in the Sydney region, we’ve seen it all over the years. The most common mistakes boil down to 2 components:
1. A lack of research and knowledge
2. Leading with your heart instead of your head.
Let’s shed some light on the top 3 mistakes when buying a business.
Top 3 mistakes when buying a business
Mistake #1 – Buying the wrong business
We spoke about leading with your heart instead of your head, and this is the case with mistake number 1. Business buyers who choose a business based on their desires, often aren’t as successful as those who choose a business based on their skill set, knowledge and experience.
Example #1: Jane buys a fitness business because she loves the appeal of the brand, and the aesthetic studio and wants to be the face of a business customers deem to be trendy. However, once she purchases the business she realises that this means consistent early morning starts, a great deal of people management and scheduling and dealing with customer complaints, which isn’t her forte.
Mistake #2 – Assuming large-scale change will be simple and won’t affect the business
Many buyers want to rebrand and put their spin on their newly acquired business. And while this can be an effective strategy for some, there’s a reason why it forms part of our top 3 mistakes when buying a business. Large-scale change can affect a business’ goodwill drastically, which can negatively impact the loyal customer base that is already established. Changing a business can be achieved, but must be done in a planned, strategic way to not scare the current customers or disrupt the current business operations.
Example #2: Phil buys a coffee shop knowing that dislikes the brand name. Instead of researching the customer base and working in the coffee shop for a while to transition into the business and build rapport with the current customer base, he wants to start fresh and decides to rebrand immediately. The result leaves customers feeling confused, they assume that a new name and new owner mean new coffee and a new menu – and they like the old one! They decide to look for a new local instead.
Mistake #3 – Overextending financially
It’s an easy mistake to make (although it seems obvious to some), but purchasing a business isn’t the only financial aspect buyers should consider. Alongside the costs associated with the business acquisition (such as conveyancing, accounting, business broking etc.), you must also consider the immediate and short/long-term costs you’ll be incurring as the new business owner. Do you have the funds to cover any short-term losses during the transition period? Do you forecast sales to cover overheads during the first 6 months? Are there any renovations/upgrades that need to occur in the initial stages of ownership that need to be financially accounted for?
Example #3: Lianne purchases a manufacturing business with an approved business loan. The sale is successful and the transition is complete. 2 months down the track, two pieces of machinery break down and she realises that they are no longer under warranty. She doesn’t have the profits to replace these and she’s lost 2 members of staff in the transition which leaves her only just breaking even. This causes a great deal of stress as she now has to find funds to cover these unforeseen expenses.
If you’re thinking about buying a business, don’t get caught out by making these simple mistakes. Contact the team at Core Business Brokers and we’ll talk you through the process, shed light on the common issues and have you feeling confident and ready for your new business venture. Our business listings are updated frequently and we have some fantastic opportunities on our books. Chat to Roy, Rad and the team today by giving us a call on (02) 9413 2977, or email Roy directly at [email protected] or Rad, at [email protected].
