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Buying A Business? 5 Red Flags to Watch Out For
Buying a business is a big investment, and it can be a nerve-wracking process – especially for a first timer. If you’re thinking of taking the plunge and becoming a business owner, here are five obvious warning signs that an enterprise might be a bigger risk than you’re prepared for.
1. The books don’t quite add up
Figures don’t always tell the whole story. Perhaps the books are in the black and the business has little debt, but there don’t seem to be many customers coming and going. Or maybe the owner assures you that they are taking much more ‘off the books’ – this is a definite warning sign! It may or may not be true, but as the turnover of the business will be a major factor in your decision, considering anything that’s not there for all to see in black and white is a big risk.
Understanding the books is a real skill, and it’s a good idea to get a business accountant in Sydney to give them the once-over for your peace of mind. A good accountant may be able to identify potential anomalies by reviewing the expenses and income of the enterprise.
2. The premises are a shambles
The business’s premises are also a key factor to consider. Is the building dirty, in need of repair, or badly presented? A poorly kept premises with broken equipment that hasn’t been replaced is a red flag that may indicate all is not what it seems.
3. There are no signs of 21st Century technology
It’s worth taking a hard look at the business’s systems and infrastructure. Does the business use obsolete technology, or rely on old and inefficient equipment? Check out what competitors are using. Outdated technology and the cost of updating could be a key reason why the business is being sold, and is another red flag.
4. The business’s reputation goes before it – not in a good way
The business may look great on paper but if it has a poor reputation or lacks a core of loyal repeat customers, you’re facing an uphill battle from the moment you take over. Check out the business’s reputation online and by talking to customers if you can. Complaints about poor customer service, the business not delivering on promises, or even lawsuits are an obvious warning sign.
5. It’s facing competition
You’ll likely be in for a rough ride if a major chain is about to open up nearby, or the business is located in a precinct that’s full of competition. Make sure you check out what’s happening in the local area. Too much competition can be a red flag.
It’s also a good idea to think about other factors that could affect the business. For example, is emerging technology about to impact the turnover, and the owner has seen the writing on the wall?
You never want to be complacent about buying a business. Keep an eye out for these common warning signs, do your homework, and consult with an accountant to avoid ending up with a very expensive lemon!