Avoid These Red Flags When Purchasing an Existing Business 

Avoid These Red Flags When Purchasing an Existing Business 

There are many paths for business owners to choose from including starting a business from scratch, buying a franchise, and making a business acquisition. In any business acquisition, there are some red flags to avoid. 

The Advantages of Making a Business Acquisition 

A business acquisition offers the advantages of an established brand, an existing customer base, a verifiable sales record and cash flow history, a functioning supply chain including existing relationships with vendors and distribution business partners, an existing operating system with proven internal processes, and trained staff who can provide transition assistance. Further, there are better financing options because there is a demonstrated cost structure and revenue stream for financing companies to evaluate as well as assets and inventory that can be used as collateral. The bottom line is that a business acquisition generally has a greater likelihood of success compared to building a business from scratch. 

Avoid These Red Flags When Making a Business Acquisition 

Being aware of and avoiding red flags when making a business acquisition will help buyers avoid mistakes that could lead to disastrous financial or operational consequences. 

First, examine and understand the business owner’s reason for selling. In your due diligence, make sure there are no ulterior motives or hidden problems. 

Second, carefully examine all the financial statements to determine that the statements are current and complete and that the business is worth the asking price.  

Third, make sure that the business is current with its tax payments. Pay close attention to the company’s payroll tax payments. 

Fourth, examine the company’s inventories to ensure that inventory statements are accurate and that inventories are not obsolete. 

Fifth, examine customer records to determine if there is a high concentration of revenues from only a few customers or if there are few repeat customers. 

Sixth, look for other problems like equipment problems or a high employee turnover rate. 

Seek Expert Financing Assistance 

Contact Green Apple Funding to get the funding assistance you need to achieve your goals and plans for making a business acquisition.