The market for the sale of ready-made businesses has been growing steadily over the past few years. However, buying a ready-made business is always a risk. This article will consider 3 risk factors in buying another company.
Buying a ready-made business: pitfalls and how to avoid them
The most significant risk factor for business is the change in the economic situation in the country. Due to changes in the exchange rate, the purchase price of goods or raw materials may rise, affecting the final price and demand. These are objective risks; it is impossible to influence them. So, there are 3 risk factors in buying another company:
- Wrong choice of business
It happens often: the buyer chooses a business, focusing on financial performance and not their skills, knowledge, and experience. He acquires a profitable company but sells it at a lower price six months later. If the owner does not know and does not understand the processes, his management is inefficient.
- Fraud
The ready-made business market is saturated with offers, but not all the declared indicators are true. And it’s not just a matter of increasing income. It is dangerous to consider objects and evaluate their profitability only according to the seller’s words and documents. You risk being a victim of scammers and losing all your investments.
- Legal risks
Legal registration is an important part of the whole process of buying and selling a business. It is necessary to read the contracts carefully and know the business sector’s specific laws. If the signed contract is drawn up incorrectly, has its pitfalls, ambiguous wording, and your interests are not protected. There is only one way out – to contact a professional lawyer specializing in buying and selling a ready-made business. So you can be sure that the contract will be drawn up transparently and will protect you in case of disputes.
In addition, the human factor plays an important role: when buying a share in a business, there will be a question of trust between partners. In many companies, there are individuals or even teams who are highly dependent on the results of work, and with them, it cannot be easy when the business moves into new hands. Therefore, even before the purchase, it is important to get to know key employees and partners, find out their attitude towards a possible change of ownership and, ideally, enlist their support.
Due diligence: identifying risks and optimizing business processes
Today, due diligence means a comprehensive audit conducted by an investor to assess the various risks associated with investing. As a rule, it is carried out when deciding whether to purchase a share in a business or a business project. Sometimes due diligence is defined as due diligence carried out by interested parties in the preparation of transaction documents to form a trust basis regarding the truth and completeness of the provisions of the documents and the facts contained therein.
If the future owner intends to buy the property, then the main task is to verify its own legality from the selling party. At the same time, the property’s title history is evaluated, that is, the chain of transactions through which it turned out to be with its current owner. The legitimacy of transactions and the procedure for their execution are also checked.
For an efficient and transparent due diligence procedure, it is recommended to set up virtual data room software. It is a digital platform that helps to structure confidential data and organize secure collaboration.