Some first time business buyers start looking for a turnaround, or buying a business that is failing so that they can make a larger profit.
First time business buyers should stay away from these transactions for a few simple reasons, here are the top 6 obstacles of Kencone CPA in Sacramento that first time business buyers need to be aware of.
1. All business turnarounds need cash.
A failing business always needs an infusion of cash to catch up accounts payables, or buy time to implement processes.
2. The reason a business is broken isn’t always obvious.
Business buyers look at a business acquisition and think they can tell the problems by a balance sheet and cash flow summary. Diagnosing the problems in a business may take time as well as seeking professional third party advice.
3. If you lacking trade specific knowledge it takes time to learn it.
A lot of business buyers are taught that they just need a firm knowledge of management and sales in order to buy a business. In a business turnaround the buyer needs an intimate knowledge of the business trade as well as business management fundamentals.
4. Business sellers in a turnaround situation are desperate.
Frequently business sellers that are looking to sell a distressed business will do anything to get the business in to someone else’s hands. I’ve heard of situations where the seller submitted fraudulent financial information in order to entrap a new unsuspected buyer.
5. Turnarounds require help from all the staff.
A business turnaround is a “all hands on deck” situation. That means every employee needs to be working with you to turn the long term course of the business in a different direction.
6. Business acquisitions should limit risk.
The whole point of buying a business for a first time business buyer is to limit the risks of starting a business. A turnaround has high risks.