Starting a brand from scratch is nowhere easy. It takes more than a great business idea to build a successful brand. Timing is an essential element, along with a solid business plan, a contingency plan, a robust marketing strategy. You need to have enough cash flow to stay afloat and employees to help you reach our business goals. What more if you want to invest in a business venture in another country?
This is one of the reasons some entrepreneurs would rather buy a small business in Europe instead. When you have the funds to buy a business for sale in your desired location, you can reduce startup time. You can take advantage of an established customer base and increase your chances of easily securing business funding.
If you’re lucky, you can leverage a proven business concept, saving you a tremendous amount of resources. But if you’re not careful, you can end up regretting the investment altogether. To help you avoid such feelings of regrets, you’re better off learning from the following mistakes.
Not Caring About the Seller’s Reason for the Sale
Business owners sell their businesses for different reasons. Some would be honest with you and give you a direct answer while others will give you stated reasons which can be completely different from their other agenda. While your goal is to buy the business at the best price, you will benefit from digging a little bit deeper and knowing the real intention behind the sale.
For instance, they plan on using the funds from the sale to start another business in the area. You can protect your investment by having a non-compete agreement with the seller. But if the seller put out their business in the market because they are undergoing a financial setback like a bankruptcy, this gives you in a good position to settle a better price.
Doing Due Diligence After Closing
It is not enough to know the products sold by the business, who the seller is, and who the company leaders are. You need to do more research about the company to make sure you’re buying the right business. The last thing you want is getting unpleasant surprises during the closing, and you already paid the seller in full.
There are lots of things you need to learn about before you even start negotiating with the seller. Some of these are as follows.
- Debts
- Taxes
- Real estate
- Physical assets
- Material contracts
- List of all litigation
- Business marketing
- Licenses and permits
- Intellectual property
- Financial information
- Customer information
- Employee lists and benefits
- Organization and good standing
Failure to do due diligence before you negotiate can put you in a risky situation. You can end up getting stuck at running a brand that has no profitable issue. You might even inherit a huge debt, had to invest more than you can afford just to save the business, or end up in a lawsuit.
Not Asking the Seller Who Their Key Employees Are
When buying a business in another country, you will benefit from retaining most of the key employees who already know how that business works. You can learn valuable information from these professionals. They can help you retain your customer base and current employees, and even retain a relationship with the brand’s suppliers, partners, and other professionals.
It is a good move to know who the key employees are even before you start the buying process. You can start getting to know the staff, keep their peace of mind, and make the adjustment period a lot less stressful for both parties. Know that some employees would not dare to stay in a company if their previous boss leaves.
To retain valuable employees, you can offer them a retention agreement and include attractive financial assistance or bonuses. You must evaluate the remaining employees and see who made it to the top, not because of what they can offer to the company. Understand that every employee has different motivations, career goals and strengths, and weaknesses that you can leverage on after the purchase.
Ignoring the Meaning of Goodwill
Goodwill is considered as a tangible asset. This arises after you buy the company, which is basically the excess purchase price. This includes all the assets you acquired after the sale that are not physical in nature, like the value of a customer base.
Knowing and understanding the goodwill of a business allows you to determine the company’s value. Remember that if a company’s goodwill gets tarnished, this can affect the value of the business and its future. This is since a company’s goodwill also involves its reputation and its connection to its consumers.
A brand’s reputation can affect its profitability, business value, and overall future. This is why you should understand that company’s goodwill before you close the sale. Make sure to calculate the goodwill before you even make an offer.
It may seem like it is easier to buy a company than start a brand on your own. But in reality, you are still making a big investment risk. If you’re seriously considering acquiring a business, make sure you do check the company’s goodwill, do due research, ask about the seller’s true intention for selling, and get to know the key employees of the business.
