When you find the business you want to purchase, the closing goes smoothly, and the owner agrees to train you, you are ready to become a successful business person. Here are five things that will help you, as you want to avoid mistakes whenever possible. It helps that you have purchased an ongoing business, giving you a path to follow; but here are five top mistakes new business owners make.
1. No written business plan. Hopefully, you prepared a business plan in the process of reviewing the business for purchase. If the seller shares the business plan currently used, it will be much easier to update and change. Of course, you will want your plan to be what you plan to do with the business. A good business plan is also essential when applying for a loan to purchase the business or later to obtain financing for expansion or operation. What is your purpose for operating the business? Having a written purpose, along with goals and how and when you plan to accomplish them, is essential for the growth and success of the business. Your plan will show how the product or service you are providing will be marketed and what percentage of the market you expect to capture. Advertising is expensive but necessary. If you don’t have a plan to follow, you may easily agree to more than you have budgeted. Using the technology today, marketing can be easier to direct to specific groups of people and sent to large groups with virtually little or no cost. Be creative with your paid and unpaid marketing and be specific in your business plan.
2. Accurate Financials. Of course, financials are an important part of your business, but they are so important that they deserve a separate heading. First of all, make sure the business you are purchasing has accurate financials. If the seller tells you the financials do not actually tell you how much the business makes, as he doesn’t show everything. He may also be hesitant to give you the federal income tax returns for the past three years to compare with the income statements, as they show different amounts. Of course, he will tell you he doesn’t show everything on the income tax returns so he doesn’t have to pay so much in taxes, assuring you that you will also want to do that. You may see this when you are looking on the web for a business. If no information is given, it usually means the broker doesn’t have the financials and has based the asking price on what the owner wants to ask, rather on what the business is making. Don’t waste your time. Honesty is important. No matter how much you think you can trust the seller, you must only base your offer on actual figures; and the seller expects you to purchase on what he says, not actual figures.
3. Demographics. An advantage of purchasing an ongoing business is the ability to see the customers, as they are the reason for the sales. It is important to look at the demographics and see if the customers purchasing will likely be customers for many years and how likely the demographics will change by increasing or decreasing. What are plans for future development of housing and businesses in the area?
4. Employees. How long have the employees been with the company and will they likely remain. Always have a backup plan for employees; and, if possible, cross train them so that they can cover for each other when necessary. Bonuses and other ways to share in the profits make employees know how important they are to the business. It is very important for you to have someone who can cover for you when you are out of the business. A mistake that many business owners make if never taking a vacation, as they don’t think anyone can operate the business without them. You could also become ill or pass away, leaving no one to cover for you and keep the business running. If the employees are trained properly, you can take a vacation.
5. Ask For Help. Never assume you know everything. Hire an accountant for at least part of your accounting, and choose an attorney to contact as needed. Good luck with your business!
