Look for These Red Flags When Buying a Business

Look for These Red Flags When Buying a Business

Buying a business rather than building one from scratch provides a number of benefits, especially for older entrepreneurs. When buying a business, you are hopefully purchasing a proven concept, an existing customer base and the equipment, employees and location that all contribute to making that business a success.

However, you should look beyond the obvious when doing your due diligence. Here are some red flags to watch out for when buying a business:

Market conditions. While the business may have been thriving in its current location, it is always prudent to research the market conditions as if you were starting the business all over again. Would you choose the current location? Is the economy in that market growing, stagnant or declining? Are there any new building or highway projects that may compromise your location? All these factors must be taken into consideration before you invest.

Unpaid taxes. If the previous owner has neglected to pay state or unemployment taxes, those taxing authorities could come after the new owner — you — to collect. To confirm that all taxes have been paid, contact the Florida Department of Revenue, which can issue a clearance letter stating that the business has no unpaid taxes.

Income potential. Be sure the current business owner is upfront about his or her discretionary income — the amount they clear after paying all business expenses. If that income is not sufficient enough for you, you should consider another investment. If the income has been declining over time, this is also a red flag, even if the revenue numbers are still strong.

Skeletons in the closet. Talking with employees and customers can give you an indication if there are any skeletons in the closet, like legal or employment issues that could impact the business once you take over. Finding out why the owner really wants to sell can help you determine if you really want to buy.

Making a large investment in buying a business should never be done without the counsel of an experienced business attorney, who can help you with the due diligence process as well as identify any unforeseen legal problems that may impact your decision to buy.

Business owners seeking to protect their business interests should seek a qualified, competent advisor for assistance. Contact one of the experienced Florida business and restaurant law attorneys at Jurado & Farshchian, P.L., at (305) 921-0440, or email us at info@jflawfirm.com. We offer free consultations to business owners seeking to find the right attorney to meet their business’ legal needs.

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